Stock Option Investment Advice

A 2018 Market Forecast Mid-Term Review

At the beginning of the year I wrote a Blog article about “A 2018 Market Forecast“. The basic forecast I setup was a rotation of sectors based on the economic and political environment of the time. About a dozen stocks were recommended in 5 sectors. Using those recommendations, I formed a model portfolio and have been tracking the results over the last 6 months. This article will review how that model stock portfolio has performed and offer some portfolio re-allocation ideas. The initial portfolio in January was: There are 10 positions in the portfolio. $100,000 total was invested with about $10,000 in each position. During the last 6 months there have been some wild swings in the prices, but no changes were made to the portfolio. As an example, SLB was up as high as $79 and as low as $63. It is currently at $67 with little change from…

Stock Option Investment Advice

Trading Discipline vs. Experience

Introduction: I have been trading stocks for over 40 years. And yet mistakes are often made despite the years of experience. Just when one thinks things are going fine, something happens that humbles the trader. It is with this background that I relate a recent trading experience as a lesson we can all learn from. Background of the trade: Earlier in the year the stock Red Hat, Inc. (RHT) was traded for a 28% profit (as shown on the Fusion Track record at RadioActiveTrading.com). But after a market sell off it looked like a market opportunity to re-enter the position. RHT was purchased on 3/28/2018 for $145. A put option was also purchased following the rules in The Blueprint to create a Married Put for safety. RHT rose soon after the purchase into the 150’s and then shot up to the 160’s. The put was sold as it still had…

Stock Option Investment Advice

A 2018 Market Forecast

From the Desk of Ernie Zerenner:  A 2018 Market Forecast At the start of a new year, it is time to reflect on last year and changes to be made in the next year. This is the time of year to make New Year’s resolutions, consider changes to your will or beneficiaries, and investment portfolios. The new year brings the opportunity to make 365 changes and 260 change opportunities to your portfolio. This weekend I tackled the last one, possible investment portfolio changes. These changes were based on several basic assumptions: Our concern is that the market may be over bought as mentioned in our last Blog article ‘Some Market Parameters to Consider Heading into 2018‘. Historically we are overdue for a 10% level correction in stock prices. With the influx of more money going into the economy from tax reform, repatriation of foreign earnings, and infrastructure rebuilding, there will…

Stock Option Investment Advice

Some Market Parameters to Consider Heading into 2018

It is year-end, and time to reflect on this year’s market activity. It certainly has been a strong up trending year for equities. And with all the very positive news currently, there is room for more gains in 2018. However, markets do not just go up forever. The markets are extended without a normal set back of 10% in some time. Is it time to be cautious? While at the library this weekend, I looked through the Value Line Survey. They had a table of some key market and economic parameters for the present vs. historical highs and lows. Some that caught my attention are listed below: Parameter                Current              Last Top            Last Low PE on VL stocks        20.3                    19.6                   14.3 Dividend Yield VL      1.9                       2.0                     4.0 Prime Rate                4.5                       4.3                     3.3 AAA Corp. Bonds      3.5                       3.5                     5.5 Short Interest/Vol      16.8                     17.9                    8.6 As you can see most of the…

Stock Option Investment Advice

Part 2: Stock, or Portfolio Insurance?

Here is Part 2 of our Stock, or Portfolio Insurance? Series:  Selecting the Right Put In this video we discuss which broad based ETF or Index Put to Select to Insure an overall portfolio. In Part 1 you saw that using an SPY Put option (the 250, ATM strike) was better insurance on a portfolio over buying shares of an Inverse or Leveraged ETF. However, was this the best strike selection? What about lower strike, lower cost, Out of the Money Puts? Wouldn’t puts with a higher delta, deeper In the Money perform better? This video breaks down the costs, outcomes, pros and cons of the different strikes you can use to insure a portfolio.  We also give you an outline of how to analyze which put might be best to insure your portfolio. I hope you enjoy Part 2, and I look forward to your thoughts and comments!

Stock Option Investment Advice

Portfolio Insurance (2017) – Part 1: For the Stock Traders

This article is Part 1 of a series on evaluating the ways to add Portfolio Insurance if you are anticipating a market correction or market decline. Most of us are probably in more Bullish positions, based on the last 12 months performance of the market. Every week new highs are being hit, and bullish stock and option traders have been doing well.   Over the last 12 months, we have seen SPX (S&P 500 index) and SPY (S&P 500 ETF) gain over 17% (SEP 13th, 2016, SPY closed at $213.23 and is currently around $250.00).       During that same time period, NDX (NASDAQ 100 index) and QQQ move up 26% (SEP 14th, 2016, QQQ at $115.85 to about $146.00).     Sure, there were small hiccups here and there along the way, but the extended growth has led to many pundits, gurus and other stock prognosticators warning of…

Stock Option Investment Advice

No Free Money with Special Dividend

I am sure that you’ve heard Costco Wholesale (COST) announced a special dividend of $7.00 per share, plus an additional increase of $0.05 to its regular quarterly dividend. The special $7.00 one time cash payment will be paid on May 26th, to those who are on record as owning shares on May 8th, 2017. What do we expect to happen when a special dividend is paid? Well, we expect the COST share price to fall -$7.00 to reflect the $7.00 one time payment. So, is this a Free Money investment if I were to buy an Out of the Money or At-the Money put option? Since the stock is going to fall the put would have to gain in price, correct? Even though I did not receive the dividend, my put would still gain and I would have a nice, juicy, leveraged profit…right? Not quite. In fact, not at all….

Stock Option Investment Advice

Stock vs. Married Put Position Analysis

Married Put Profits Compared to Stock Only Profits: Using married puts to protect and insure a stock position has certain risk / reward trade-offs.  Each position is a little different. Your profit results will depend on your stock selection, how much risk you take with the purchase of the put, and what income methods you apply to the position.  Two different investors taking positions in the same stock will likely have different outcomes just because of their individual choices for strike price of the put, what income method to apply, and when during the hold cycle to apply the method.  Recently an investor wrote to us about some profit concerns with one of his marred put positions: “The stock DB was bought 10-4-16 using the Married Put.  The stock is up 57%.  I am only showing a 16% profit because of the Put.  Granted Hindsight is 20/20.  I realize this…

Stock Option Investment Advice

Free Options Resources on PowerOptions

Free Options Resources: What makes options resources valuable? Is it the promise of high returns?   Is it the promise of a high success rate?   Is it focusing on only the potential success of a strategy, without focusing on the risks or management? Let’s be honest, there are thousands of free options trading resources available. Any trader who has bought one option contract or sold a call against their stock can post a blog, video or white paper about their trade. That doesn’t make them an expert on the subject matter, although they do have an experience to share. Other free resources will give a static definition of a strategy – just enough to illustrate the basics without providing any further details on the risks of the trade or management ideas. In other words, just enough information to be dangerous. And there are still those services that will give you just…

Stock Option Investment Advice

Configure Stock Chart Parameters

Setting Stock Chart Parameters using Big Charts: In Power Options we use Big Charts as our stock charting tool.  There are 3 stock chart programs offered by Big Charts: Basic Chart Advanced Chart Interactive Chart We use the Advanced Chart version, with modifications to the default parameter settings.  We modify the default settings to make the display more user friendly for the options trader.  The modified settings are then saved so they will be applied to future stock chart displays without the need to change from the default setting each time a new stock chart is requested.  Big Charts settings are changed in the left hand column of the chart display (in blue): Stock chart parameter changes The first grouping of parameters are for “Time Frame”.  A one year time frame is shown by default, but for option trading 3 months is a more convenient choice.  And the frequency is left…