Tuesday, February 25, 2014

Staggering expirations

One strategy that people usually find very attractive is the selling of naked put options. The strategy consists in selling a put option at level that you consider a good point of entry and until that price is reached you get the payment to wait. 

This seems good, especially when you are speaking about good stocks. The main problem is that for you to achieve a good premium on the sold option, you have to get close to the actual trading price, which usually isn’t the strike you are planning to buy when you evaluate the trade.

One of the solutions for this strategy is to staggering the options. So if you sell an option far away in time, you might get the premium you were willing to get, as well as the perfect strike price. 

What happens now is that you are too far in time. In order to solve this issue, you can sell a 3 month option today, a new 3 month in the next month and a new 3 month after that. 

After a while, you will have your options expiring monthly, as if you were selling the front month. The first three months will be boring, but after that you get a cash cow. 

Selling a put option has the same chart of a covered call. 

Note: Options are risky and you should read Characteristics and Risks of Standardized Options and Supplements.

Monday, February 24, 2014

Keep it simple... always!

This is a nice chart showing the characteristics needed for a turnaround story.
Most of the times people tend to focus on a lot of ratios and complicated projections.

My advice... Keep it very simple.

Ur Energy on the weekly frame... by steveoliveira on TradingView.com

Wednesday, February 19, 2014

The Loop...

Have you ever noticed when you start studying some technique that almost immediately you get the feeling that everyone is doing that? It starts with a search engine, then forums, then a lot of other things, and you get that sensation that you are jumping to the new trend in investing. With the market being in the end highly counter intuitive, this will put a big hurdle right in the beginning as you will have to deal with your own insecurity and only after you can get through the market.

Let's consider an example: You finish reading a book with a very interesting theme like covered calls. The subject is fascinating and makes a lot of sense. You dig further, and find many sites that are full of members devoted to this trading strategy. You begin to look for potential failures and testimonials for someone who got it wrong. After a while, you are inside a world that makes you think that nothing else makes sense. You just found the closest thing to a holly grail.

Then comes disappointment, all the dreams you had seemed to vanish slowly and like a drug addict you will go through all the phases: disillusion, disappointment, frustration and in the end you give up.

Can you avoid all of this? maybe not...