Greetings, followers. Once again, life got in the way of my posting on a regular basis. Which may be a good thing considering what I was thinking about posting a few days ago. I will get into that and the changes I made to my portfolio as you read on.
If I had posted a few days ago, you would have read that my opinion would have been that investors should be watching the four major indices for a stock charting pattern known as a Head-and-Shoulders. A Head-and-Shoulders is when a stock chart is made of three highs and two lows, where the second high is obviously higher than the first and third high. The fortunate thing is that this did not happen. In fact, a few days later the second high was exceeded by the price movements of yesterday (for the Dow) and today (for the NASDAQ, S&P 500, and Russell 2000). But if you are an active investor like myself, you know better than to take your eyes off the market for more than a few days at a time.
Now, as far my portfolio is concerned, I mention in my last post that I thought NG was going to go up and that would mean that my stop on my PUT would most likely be executed. I am actually glad it did because NG had a monster of a day. It almost moved an entire buck, and since then has maintained this relatively higher value. If I did not have that stop in place, I would have been in major losses right now. But as a result I had capital available to make my current selections.
Before I tell you about my current selections, let me tell you what else I did with NG position. I analyzed NG to see if I believed it had a chance of continuing past it's next strike price in it's option chain ($5). I noticed that strike price was a point of resistance previously and NG still hasn't reported the potential for profit this year, so I sold $5 OCT09 CALLS against my stock. I did this for two reasons. The first because I want the additional capital I get for the premium that is paid for the CALLs. The second reason is that I don't care if the stock gets called away from me since I am profitable with NG at any price above $3.10 and I am becoming more interested in restricting my stock ownership to stocks with a dividend.
Since I sold the calls, NG has been bouncing against resistance everyday and has announced that earnings will be reported in October before the market opens. I still don't have much interest in holding on to the stock long term so I will leave the CALLs in place.
My current selections now include CALLs on CVX and DIS. Both are short term with expiration in October. My reasons for buying them are as follows. First, they are part of what makes up the Dow, and as mentioned above the Dow has challenged and beat it's second high in that potential Head-and-Shoulders charting pattern. Second, they are both coming off oversold levels meaning there is significant upward gain that I can take advantage of. Third, I want to own the stock, but since I don't have the capital to buy them in quantities that I would like, options are the next best thing and the growth potential for these stocks are sweet. I have put in place stop orders that are GTC (Good-Til-Cancelled) in order to protect my gains on my DIS CALL and the majority of my principle on my CVX CALL (majority because my willingness to lose is larger than the current profits on that position).
As a result of the past two days, I am in the green for all of my current positions. However, as a result of my initially flawed options strategy, I have realized a loss this year that my current unrealized profits only cover 75%. I have come to the conclusion that I was not setting proper stops and buying a lot of OTM options when I should have been buying a smaller amount of ITM options. The reasons being that the stops are easier to set and the exponential rewards are more immediate with ITM options even though the quantity of the position will be significantly less. So goes the school of hard knocks.
In addition to these current positions I have an order in place for a CALL on T. My reason being that, depending on your opinion of anomalous price movements, I see either a Double-Bottom or a Cup-and-Handle break-out price set-up. This means that there is a chance for some large advancements in price until the next resistance level if it breaks through the current one. So my CALL order is set as a stop limit that starts a little above the current ASK and has a tight range.
That is my opinion, you can take it or leave it. Disclaimer: See bottom of page.
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