Category: Beginners

I was down by almost $3200 again today by the end of my lunch break.  That’s when everything changed.  I ended the day up almost $350. 

I sold 2 MRO Feb 50 calls (MROBJ) and received $149.50 after commissions.  This trade was to cover my Feb 50 puts and give me more cushion to the downside.

I sold 2 MRO Feb 45 covered calls (MROBI) and received $368.50 after commissions. This trade was to cover the 200 shares I own already.  MRO was down another $3+ when I sold these new two sets of calls and it ended the day up more than $0.50.  Clearly I wasn’t expecting such a rally as I left a bunch of money on the table.

I sold 1 BA Feb 80 call (BABP) and received $109.25 after commissions.  This was to cover my 100 shares of BA I already own.  I have two other Feb 85 calls by themselves still too.  I am banking on BA not rallying $8.50+ in the next 17 trading days.

I sold 2 ADBE Feb 35 calls (AEQBG) and received $108.50 after commissions.  ADBE was down another $1 or so when I made this trade.  It closed up $0.33.  This trade was to cover two Feb 40 naked puts I have a fat paper loss on.  I’m basically securing a loss for myself if ADBE closes at expiration …

Kopin Tan had a great line in this week’s Barron’s.
“Like beer bellies and bald spots, a recession is one of those things whose precise beginning is hard to pinpoint - until the sad evidence eventually becomes hard to refute.” 
We have no true way other than guess if we are actually in a recession yet, but we do know the indices are down and most of our accounts show its harsh reality.  The same Barron’s article pointed out that based on data from the 1973, 1980, 1981 and 1990 recessions, “on average, the S&P 500 fell 23% from it’s peak.” That means we might only be half-way to the bottom of where we’re heading if we are indeed heading towards a recession.  With that fear in the minds of many, I’m going to go with the belief that even if we don’t keep dropping another 10-13% we are not likely for a massive rally that lasts months in the near future and I’m going to start selling more naked calls to try to prosper from it. 

I received the above table in an automated email from TD Ameritrade I get weekly.  I like the quick view of the indices’s returns or in this case, lack there of.  Checking out the “big picture” like this always makes me feel better when I’ve had a bad few weeks.  I …

Earlier today I mentioned I was leaving a limit order to sell covered calls on my 300 DWA shares.  While DWA was trading at $22.79, my limit order hit and I sold three March 25 DWA covered calls (DWACE) and received $257.75 after commissions. 

I screwed up on DWA a while ago and let emotions get the better of me.  One of the reasons I did so well in 2007 was that I stayed fairly strict about accepting losses without emotion and moving on to better stocks when one of my picks went south.  I didn’t follow that rule with DWA and maybe I’m still not.

I started with DWA two months ago and received $262.75 in premiums from my December 30 naked puts.  Then DWA took a short ride up and finally started to collapse by early December.  I sold double the calls for what I was about to be assigned, but did so at market prices and got burned.  I bought those calls back for a $60 profit when I thought DWA would have a return to glory, but instead I wasted my money as DWA fell deeper than before.

If DWA can make it back up to 25 by March, I’ll take …

When I first started selling options I had a lot of questions about how the taxes worked with it.  At the end of my first year of selling options I asked a neighbor who was a financial advisor how I should account for options that had not expired yet.  He said he’d have to check and get back to me.  At some point after I asked him it dawned on me that until I bought it back or it expired I didn’t have a cost basis for my transaction so the gain or loss would roll into the next year.  It sounds simple now, but confused me when I first pondered it.  I’m sure others have wondered before the light went on for them too.

Earlier this year I asked a CPA about creating a business for this blog to have a way to write off expenses.  She was cool and said she’d charge me more than I’d save by coming to her and I could just list my blog income and expenses on a schedule C and not have to incorporate.  She also asked how much I was trading to see if I’d qualify as a “Trader”.  I don’t.  She also asked my current income and was happy to see that my FICA was covered by my current W-2 job.  I left the phone call happy with my new …

I changed the look of my DJIA chart a little this weekend.  I’ve added in the momentum indicator Williams %R (aka %R).  %R tries to measure overbought and oversold levels.  The 0-20 and 80-100 levels are highlighted in grey automatically.

Stockcharts.com goes into greater detail, but here’s a snippet:  

William %R, sometimes referred to as %R, shows the relationship of the close relative to the high-low range over a set period of time. The nearer the close is to the top of the range, the nearer to zero (higher) the indicator will be. The nearer the close is to the bottom of the range, the nearer to -100 (lower) the indicator will be. If the close equals the high of the high-low range, then the indicator will show 0 (the highest reading). If the close equals the low of the high-low range, then the result will be -100 (the lowest reading).

What I’m highlighting below is the wide range of time a stock or in this case, an index, can trade in the overbought and oversold areas.  The red boxes show the overbought periods and the blue boxes show the oversold periods.  The purple box shows the importance of the time period you choose to review.  I used 14 and 28 day indicators.  The 28 day smooths out some of the peaks …

I’m always looking for new option ideas on the best stock picks I can find.  I don’t limit myself to just growth stocks or only value stocks, but try to keep an open mind to any worthwhile ideas for good stocks.  Since I work full time and trade when I can, I don’t visit a lot of different sources for my picks.  These are the ones I’ve used this year for most of my trades.

Barron’s - Free daily stock picks on line in some articles.  I recommend subscribing to the weekly newspaper to get more than just what you can see for free.
Investors Business Daily - Another newspaper that is full of daily stock picks.  IBD is published five days a week and is worth a short, free trial subscription at a minimum.  I subscribed for half a year before I admitted I didn’t have enough time to kick back and read that much that often.  I still pick on up at the newsstand occasionally.
Smart Money magazine usually offers a few good ideas with various stock screens that can lead to good investment choices.  It’s only a monthly magazine, so you miss out on the real time ideas with this one.
Mad Money - Jim Cramer is all about free …

I exchange emails with readers on a fairly regular basis and occasionally try to move the conversation to a blog post.  One of the newer readers and commenters, Josh, sent me a few good questions that made me think.  So, I figured I’d try to answer the best I could in front of everyone since others might be wondering the same questions and have more they can add to the discussion.

If the stock you purchase trades against you is there an adjustment strategy you utilize to lessen the shock of capital drawdown?

A month ago I might have answered differently, so keep in mind the foundation for my answer is flexibilty.  If I’ve been assigned a stock from a naked put or look like I’m about to I first have to decide if the stock is worth keeping.  If it is, I sell a covered call to try to keep a profit.  If it continues to drop, I have to reconsider and might sell an other call, although this one would NOT be covered, it would be a naked call and therefore a lot more risky.  I sold a naked call on AA a few months ago and wrote about it here.  It worked for me then as the stock came back above the naked put strike and stayed below the naked call strike.  That gave me …

I am caught up once again.  I dealt with all of my problem children within the first hour of trading this morning. 

I sold all of my DOX shares at 32.47.  I won’t be surprised if it rebounds, but it was below where the chart said it should be and the premiums weren’t worth working it deeper.
I sold all of my GM shares.  I learned a lesson with this trade.  I didn’t like the stock when I first sold naked puts on it, but thought it would climb.  When it did climb I should have treated it as a trade and dumped for a shorter-term profit.  That ended up being a $1500+ mistake from what could’ve been to what was.
I covered my MRO shares with two calls out of the money.  When MRO was trading at 56.55 I sold two January 57.50 calls (MROAY) and received $748.50.  This brings me back to a paper profit, again.
I covered my CAT shares out of the money.  When CAT was trading at 68.85 I sold one January 70 call (CATAN) and received $314.25 after commissions.
I covered my MOT shares in the money.  When MOT was trading at 16.39 I sold five January 16 calls (MOTAQ) and received $511.12 after commissions.

I kept the three stocks that I wrote calls on because I …

Have you ever been to a fun funeral?  I went to one in college that was fun.  The mother of an ex-girlfriend of mine died and I drove from Athens, GA to Charlotte, NC with three of her girl friends.  I hadn’t hung out with a lot of them since we broke up and it was a fun reunion.  We actually had to wait a few minutes in the car before going in so we could stop laughing when we got there.  The funeral I went to this weekend had a similar element to it.  It was for the step-father of my old next door neighbor growing up.

The guy who died was 65 and seemed healthy.  I used to talk stocks with him some.  Walking around his house I saw a stack of Barron’s papers and various books on charting and fundamental analysis.  The reception seemed like more of a fun get-together for old friends and our kids.  The kids all had a blast playing together and the grown-ups (as if that’s what I am) got to catch up with people we haven’t seen much of in years.

I know, you are thinking what does all this have to do with stocks and options.  It’s the external factors that play into the mindset of an investor.  I often talk about keeping emotions out of investing, but I realize …