Th Bull Put Spread on Ford

Hello All,
Here goes a Bull Put Spread on Ford.  I am using the March 2010 BTO $12 puts and selling the $13 Puts.  I like the way this company has been showing bullish signs.  Lately I have wanted to spread trade more to mitigate my losses.  With the current breakout on Monday, surpassing the $12 resistance, I think we are in line to a great run up.

As we can see, I think we have a wedge pattern erupting.  The last few days have increased in volume.  Our secondary indicators are also bullish, such as the MACD.

Overall, I think this is a good trade, with the stock keeping above $13 before the expiration of our March options.

(Charts courtesy of MachTrader)

A hopefull revival of the postings!

Hello everyone,


It's been a while since I've written anything. Truth is I have had a lot going on. From moving and my day job, I've neglected the blog a lot. Well here we go. Recently I have been playing a Bear Put Spread on SLV. This fund has been showing bearish signs on the daily chart. I also have a Bear Call Spread on TM. This stock has been extremely bearish, as expected with any recall. Not to mention the bearish signals being scene too.



I will drop in later.

It's Been A While

Long time no see.

I moved from San Diego, got a new job, and moved again.  No matter what, I learned some leasons.  STAY FOCUSED ON YOUR RULES.  I was playing GOOG and caught a nice $25 gain.  Nice.  What sucked on the extra $50 profit I lost because I didn't stick to the rules.

Point being:  STAY FOCUSED

Busy busy July

Hey everyone,
Things have been moving fast in July. I cashed out of Big Lots finally a few weeks ago. Because of the way it moved, there was minimal gain. In the next few days we went into Nike Inc., and didn't do too well.

Nonetheless, we are now into a LEAPS covered write on Dean Foods (DF). For those who are curious what this is, let me explain. A typical covered call involves buying the stock, then selling (AKA writing) the front month call option.

Example:
XYZ stock sells for $10/share. You buy 100 shares, totaling $1000.

Next, you find the front month call option, first one OTM (Out The Money), which in this case would be $12.50 strike. Lets say you are only a couple weeks out from expiration, and therefore the cost of this option is $0.50/contract.

Therefore, selling 100 contracts would yield a profit of $50. $50/$1000=5% ROI/Month.

Not bad. But remember this play is designed for flat or mildly bullish stock. It should be obvious that if the stock value decreases, your core value in stock goes down. And if we see a very bullish move, you lose on profit.

The LEAPS covered write is similar, replacing the stock with the LEAPS (Long Term Equity Anticipation Securities). The benefit here is you spend about 25% of what you would spend buying stock outright. Given our example, lets look how this pans out.

Stock is $10. Therefor, 25% of this is $2.50. 100 contracts=$250.

Selling front month options (per our previous example): $12.50 strike @ $0.50/contract=$50

$50/$250=20% ROI/Month.

The downfall to this play, is our risk graph curves down from profit to losses if the stock price rises too high. This occurs due to a number of reasons, such as delta values, time decays, ect.

The point here is seeing how powerful some plays are. Right now our play is in action. Assuming things swing our way, we will see a $0.80 return per contract.

Until next time.

Trade Adjustment - Big Lots Inc

Hello,
We saw a nice move to the bear side in our Big Lots Inc. (BIG) put play. We opened at a nice low $20.24, dove down to $19.60, only to rise to close at $20.00. Because of our initial target of $19.89 intraday, I have decided it is time to adjust to start locking in profits.

The first goal hear is to define our next, intermediate office. After plotting average price movements & Fibonacci levels, I've made a decision to set the next target at $18.27.

Taking a look at volatility, we can see that 30 day HV is on the rise, which is expected of a falling stock. This is confirmed by bearish volume, which is rising. The best thing I can see is the stock price breaking the 200 MA.

So far, I'm feeling confident we will end up profitable. Only time will tell.

This Week Was Frustrating

Hello all,

This week has been an interesting one. After a few days, we finally are in a long put position on Big Lots Inc. (BIG). I saw this play develop earlier this week as I scanned them market.

As we can see from the chart above, this is a classic down trending stock, gaining momentum. We have the 20 day MA below the 50 day MA. Our stock is riding the 200 day MA. We can see a retracement , followed by a red dark cloud cover candle stick. After reviewing volume, and secondary indicators, I decided to place a trade, using a buy trigger order contingent on this stock going below $20.78 ($0.05 below Mondays low)

This stock has been frustrating. The next two days have seemed to be consolidating. We've seen down days, but no significant movement to our trigger. Then, finally after three days on Thursday, we saw some action.

We finally got in. And after some nice movement, Big Lots closed at $20.32. We anticipate a nice movement down, and if Fibonacci works out, may see a new low at $18.27.

USO Update

The market opening today provided a bittersweet condition. The good news is that USO opened above our stop, lowering our exposure to assignment. However, we had been stopped out, buying to close the June 38 puts at $0.65. This produced a loss of $0.25.

Lessons learned, many! First, dropping down to the next lower strike price may have kept us in this position, and lowered our risk of assignment. Although we would have received a lower premium, we would have more likely made a profit.

Second, when we opened this position, intraday trading appeared to be pivotal, in that our intraday trending was on the verge of changing. Although the rise in volatility at the time may have contributed to higher premiums, I feel we should have taken a more conservative approach.

Lastly, and I think this should be a new rule for me, DON'T TRADE WHILE TRAVELING! I did not have access to all my tools, and this is a severe mistake.

I would like to explore more cash flow plays for USO, provided it finishes it's current retracement and continues its up trend.

I am on my way to Hawaii for my honeymoon. I will write again next week.

John
Sent from my Verizon Wireless BlackBerry

Long time no hear?

Hello everyone. It has been a while since I've posted anything, so let me fill you in. I just married my beautiful wife, Melissa on Saturday. We are heading to Maui tomorrow.

The market has been interesting lately. We have seen a good rally, but now lately we have seen retracement. This is interesting for this week since June options are expiring soon. Therefore it has been hard to find any items to sell puts on.

Nonetheless, I had sold the $38 June puts on USO for $0.40. Realizing that the chance of assignment within the next 3 days is possible, although unpreffered, still leaves us with an option with creating a nice covered call play in an overall uptrending ETF.

Overall, this position is managable and I feel confident in making it profitable.

Until next time.
Sent from my Verizon Wireless BlackBerry

We're at support...Again.

DJIA MARCH 30, 2009

Here we go again!

Most stocks opened today at a GAP - when there is a gap between the last candle and the present candle. This is interesting since the market has been on a rally lately.

Now we have this gap, not present here, but all over the place everywhere else.

DIA ETF MARCH 30, 2009

Now check this out, the DJIA ETF, the Diamonds. Classic gap. I can list all the examples I want, but a lot of EVERYTHING looks like this.

Now I'm not Cramer, but I would wait a couple of days before I'd do ANYTHING. Generally gaps have a habit of returning to the original level, but after that......who knows!

The Bull Market Comback?

Are we in a comeback? After what we saw in the market today, I'm sure a lot of people are hope full. After all, $1 Trillion is a lot of money. Is it enough to stimulate out of recession?

We are seeing signs of comebacks, but I wouldn't say 100% we're out of the woods. Keep in mind that I speak technical, not fundamental analysis. When I think something may occur, it's usually from what I see in a chart and not in the papers.

First, I made the assumptions that the market would go down due to a few indicators:

1) We saw consistent rally for several days, bouncing off a new low, in an existing downtrend. This was confirmed by a sell off last week.

2) We were between 20 and 50 day moving averages, and appeared in a great spot to sell off.

3) Secondary indications of an overbought condition.

4) Price was hitting an established ceiling.

However, as we saw, the market went UP. First rule of trading, know you are not perfect. Check. But now we know this information, let's see the case for a bull run:

1) Breaking the new barrier. That ceiling we were testing is now being broken, and we could have entered a new price band.

2) Commodities. I notice how commodities are looking like they are struggling to maintain their trends. This could indicate confidence flowing back into the markets.

3) Volume. Generally positive volume, and not really decreasing.

Although I think I made some valid points, I feel overall that traders are still undecided. The next few weeks may establish where the market may go. If we see a trend change, I'll be sure to tell you.

At Least I'm not Cramer!

This weekend I mentioned that the market may go down, and looking at the market this morning, I am obviously wrong. But hey at least I'm not Cramer. Although I failed to remember Obama's unveiling of the bailout when I made this speculation, I'm still going to hold to my guns this week and say that the market is still bearish.

I should probably say that if you are trading off my advice, DON'T. I'm mostly wrong about a lot of speculations, and I'm protected with my plan most of the time from this. I am not Cramer, please don't blame me if you lose money.

Rant about nothing

Well well,
Nothing much to talk about here. I look forward to seeing what the market does tomorrow. Is the S&P doing to drop tomorrow? I think so. I see a lot of stocks dropping tomorrow, but hey, I'm just speculating. I know I said that I though we were at bottom, and we may be. After all, we have been consolidating so much, I don't think the market would go much lower.

So here we are, consolidating, riding a channel. We'll probably drop again, but not real far (considering the past). But hey, we could CRASH again too, or even go up.

What do I know?

Bill Gates Looks Funny

I'm sitting here watching an interview with Bill Gates on CNN and I ask myself, "With all that money, should Bill Gates look better?" My answer is obvious, but maybe I am wrong. Maybe with all the money the Czar of Microsoft could "splurge" a little and get a nice looking wardrobe, maybe a cleaner haircut, who knows what he could do! My point is that he really looks like he doesn't get out much; I guess that is the case with most billionaires? Gee I sure hope not, but maybe that is the case. Oh well.

Nonetheless, the world has been to say the least interesting the last few weeks. I don't know how many AIG stories I have read in the last few weeks. My opinion, let them fail, and that bailout money for the institutions that would be in trouble if AIG failed. But that is my opinion.

Sooner or later I am sure that this fiasco will blow over, but when is a mystery.

Have We Hit Bottom?

Hello everyone.
The last few weeks are interesting at best. The S&P has been floating, literally, at a MAJOR support zone. As the price broke support, I was seeing a great opportunity. Last week we saw the S&P come up to test the new resistance, and what happens?

It broke through.

Now I was set up great. I was thinking it would kiss this new resistance level then walk off the cliff. But no, instead we saw the S&P climb, as it has for the last few days. Although we have consolidated and consolidated, my question is if we stay at this level, is this the bottom? Are we just looking for an excuse to drive the markets back up? If so, then what are we waiting for?

To be a trader today is very interesting. This isn't an arena where we know the overall trend. As I watch the markets today, I'm glad that I know what I know. Opportunity is here, it is always here, and knowing when to grab it is what we all need to know today to thrive in this market. I just wish the damn stock I'm watching right now would "conform" and go my way!

Needless to say, my plan is sound and I know that my position is not exposing me to a lot of risk. And this should be the same for traders everywhere. I run into people everyday that tell me what has happened to there 401k's, and the best advice I can give is to learn how to manage your money. I know the markets tanked, but honestly if there were a plan in place for some of these people and their life's savings, would we hear about people losing years of savings?

I am going to be talking about plans a lot, because it is important. It should be a cornerstone of a trader's career. I haven't been trading for long, but I like to reiterate the obvious. For anyone who invests, make a plan.

As for hitting the bottom, we won't know till after it's happened. But look around, and tell me, are the signs visible? Do you see what I see?

Creating a Plan

Hello everyone,
It has been a while since we last spoke, and I would like to again make a new suggestion to those who are hungry to invest. Investing can make you millions, and can make you lose millions too if you are not careful. One of the most powerful, and also most difficult idea to maintain, is to have a plan. Whether you are a real estate investor or stock, options, or futures investor, having a plan is THE cornerstone to any investor's career and to invest without one is dangerous.

I believe most people fail at investing because they is no plan. I am defining failure not only as losing money, but also not making money. Now if your plan allocates your investments returning only 5% a year, and you have defined this and met your goals, then your plan is a success! But if you throw your money into a 401k program, with no definite plan in mind of where you want you money to grow, then how can you call yourself a successful investor? This is typical of how a gambler plays; throw your money on the table, pick up the cards dealt, and hope you have the winning hand. There is no control here, no matter how well you define your skills to interpret your conditions.

Not having a plan introduces demons with your investments. First, the lack of rules creates an environment where conditions will affect your position that could be controlled otherwise. I am talking about setting up criteria in an investment, such as not buying a stock unless it matches a set of rules, or even not buying a property unless it falls into a certain window of characteristics. In example, if you have a rental property, and are having issues with cashflow because tenants are moving in & out, you could set a rule where you require a tenant to sign a longer term lease. Or with stocks, you may set a rule where you only but a stock that is in an established uptrend.

Second, be consistent with your rules. Don't deviate. How can you know how your program is working when you are changing it to fit your desires? Not every investment is rosy, especially now. So why would you deviate from rules that define your ideal investment? Sure you may take less trades, buy less properties; but the investments you do make will be well defined, and more profitable overall. John Wayne didn't go to Wall Street for a reason, so don't be a John Wayne there either.

Lastly, greed is not good. It clouds the mind. Motivation, and the desire to become a better investor is good, but often this feeling and ideology will morph into greed. Be aware and avoid this completely.

Until next time,
John

Don't Be Stupid

Today I had a very chilling experience in the market today. It wasn't because of the stock market took a dive; instead it was due to sheer stupidity. This week I broke two very important rules, and because of that I put myself in a position that was not my best interest. It is very important to know your own rules, and to abide by them no matter what. More important, the ability to self govern, and the ability to recognize your own mistakes before anybody else is crucial.

My first was a mistake of laziness and stupidity. I failed to keep an eye on the market conditions. I thought my investments were safe and secure, and I could take a night off from looking at the market. I woke up this morning and saw the company Research In Motion (RIMM) dropped over nine dollars per share this morning. It stung a little bit, because this could have been avoided if I had read the news. But I didn't and I lost little money today; not because the market did something abnormal, but I failed to keep up with the positions I was holding. This should be a lesson to anybody investing that you should always maintain good stewardship of your investments; the minute you look away everything runs south.

My second mistake was a mistake that plagues every investor. I believe this is the worst plague that infests investors because it is the most prevalent. If I haven't talked about this already I'm going to talk about it a lot more because it's important. I'm talking about emotions. I let my emotions get the best to me today, and because of that I made some poor decisions. Letting your emotions drive your decisions to be the most horrifying experience to imagine. If you're starting out in investing and learned anything learned this first: put your emotions on the sidelines.

Please don't get me wrong; I did not lose all a lot of money today. The point is I acted in a way that was unprofessional, and loses you money. Let us be a lesson to everybody, because I would not be writing about this unless I cared. I wish that everybody is successful in his or her investing career and I am here to help those who seek it.
Thank you

Don't Give out Bad Advice

That's right don't give out bad advice. I had the opportunity today to read on article which advice was given that wasn't so great. To do yourself a favor, if you're going to give out advice, make sure it's advice people to actually use. Let's try to guide people in the right direction. I'm tired of seeing people lose money because of bad device from those in positions that could actually help.

Blogging From My Mobile

I am testing this new method of blogging. It is amazing what we are able to do with technology today. Ever since I got this blackberry I have been intrigued with what it can do. It seems like every day I discover a new thing! I demand that everyone experiment with this so you too can unleash the benefits of technology!
Sent from my Verizon Wireless BlackBerry

Meetup.com

Hello,

I have a meetup.com club, which I am trying to organize a meeting. The link to view the club is on this blog somewhere. I invite everyone to please join and learn more about investing. This is for every one's benefit and I look forward to share my knowledge, as well as learn.

Thank you,
John

Subject to deals

Investing in real estate is unlike investing in the stock market, or any other medium of investing. With real estate, you're able to execute deals that are unique, fun, and at times historic. Today I want to talk about a specific strategy of investing in real estate. Today I am going to talk about the subject to deal.

A subject to deal is very unique because it allows you to 1) utilize private financing and 2) limit your liability exposure. Over last few months, subject to deals have had a bad rap because of unethical and downright shady individuals. I'm talking about the scam artists that take advantage of people in need for the own benefit. A true subject to deal is a win-win situation for all parties involved.

So let's paint out an ideal situation. Let's say Joe owns a three-bedroom two-bathroom house. He's owned this house for over five years. Now Joe is like any other American, pays his bills on time, has a nice house, a good job, and a growing family. Like many Americans today, Joe just learned that he's going to lose his job. This is truly unfortunate because for this scenario Joe is going to have difficulties finding another job.

So days turn into weeks, and weeks turn into months. Joe starts to fall behind on all those bills, even his mortgage. Warning letters start to come in the mail, and Joe gets worried. Joe soon realizes that he's going to have to file for bankruptcy because he can't afford to pay off his house anymore. This is a horrible situation for anybody to be in. Fortunately there is a way we can help.

Before I go on any further, I would like to simply point out that if this strategy interests you, please educate yourself first before attempting to do it. Like with anything I talk about, I will not be responsible for anybody being stupid, ignorant, again stupid, and again ignorant. Please please please with sugar on top, seek the advice of a professional first before you do anything!

Like I said above this could be a win-win situation. Whether or not Joe likes to, he's going to lose his house. What we're able to do is help Joe save his credit. A subject to deal is a deal that is subject to existing financing; where we want to acquire a house without taking out a new mortgage. We negotiate a purchase price, and keep the existing mortgage in place, and make payments on that mortgage. We do not put our name on mortgage, in fact the bank should never know that were making payments for Joe.

Now the bank may not like this. What is happening is Joe will sign over the deed to the house to us, and in exchange we will make payments on his mortgage for him. If needed, we will give Joe a premium, which ideally will be used to bring the mortgage current. This sudden influx of money into Joe's credit, as well as consistent payments on Joe's mortgage will undoubtedly help Joe's credit. Joe was already going to lose his house from the start; all we did was simply help Joe's credit.

So Joe is happy.

And we are happy, because we just acquired a house with having to deal with applying for new mortgage. If we negotiated the purchase price higher than the mortgage amount, we could simply send a second check every month to Joe to pay off this separate amount.

I mentioned above, you do not want to tell the bank about this. The bank may be a little bit upset that the person on file for that mortgage just signed over their house to a complete stranger. Sometimes there is a clause in loan documents that states the bank may call a loan due within 30 days if they discover this has happened. But think about this for a second: if a bank is getting its money every single month without interruption, do you really think they're going to say anything? After all a bank really makes its money off the interests of that mortgage. So why would they want to screw up a good thing? So my point here is this: what the bank doesn't know won't hurt them, just make sure you make every single payment on time.

So overall, I hope you can see the power of the strategy. Again please consult the advice of a professional first before you embark on such an endeavor.

Until next time,
John