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Doctoroption.com where investors & traders get their second opinions
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We do the second-riskiest trading there is. We buy and sell very volatile stocks and options associated with those stocks. If that’s what you came here for, read on. If not, click your “back” button. You won’t want to read any further. |
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For the beginner, we have a few eBooks. The one on covered calls shows you how to select which are really the proper stocks on which to write covered calls and, more importantly, how to protect yourself from the stock gapping down and wiping you out. It will cost you only $5.95 to find out how we do this. Is it cheaper for you to spend $5.95 to find out our way, or is it cheaper for you to lose thousands while finding out on your own? You decide. I wrote this because, one time, I bought a stock for $21.375 and sold the $22.50 call for $1.93, yielding 17%. The next morning, the stock opened at $9.00. That sucked. But I’ve learned. So can you, but you can learn the cheap way. We have another eBook on spreads, covering everything from credit to debit spreads, as well as real examples of how we’ve done them, where we’ve profited, where we’ve lost, and lessons learned. I’ve made and lost thousands on spreads. You can pick up this eBook for $5.95 and learn the easy way, or you can learn the other way. Both eBooks have a money-back guarantee. |
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Before trying out our service, you might want to see a sample newsletter. We’re happy to accommodate you. Have a look: Money Matters August 2006 The Doctor Is In ________________________________________________________________________ Using Spreads As A Stock Substitute (Part 1 of 3) Most of you know I’m bullish on the precious metals in the long term. So, when they sell off, I get interested. This month we’ll explore how I decided the price at which I would buy one of
those stocks, and then let someone else pay me to buy it there! Goldcorp (GG) meets all of my long-term investing criteria. At the time I became interested in the stock, though, it was above its rising 150-day moving average. So I wasn’t anxious to get into it – yet. The price was mid-August, the stock price was $29.85, and I wanted to buy it below $29.29, its moving average. What were the choices? First, I could have just bought the stock at its 150-day moving average. In other words, I would have placed a limit order to buy 1,000 shares of GG at $29.29. But, had I done that, I would have subjected myself to the old, ugly enemy of every stock trader: gaps. Let’s try something else. Second, I could sell puts on GG. If I sell puts, I obligate my self to buy the stock at a certain strike price until the expiration day. At the time, the September 30 puts were going for $1.00. I could have sold 10 contracts and picked up $1,000.00, minus my commission. What’s the risk? The risk is that GG will fall to zero, and I’m not hedged. Besides, since these are cash-secured puts, I have to put up the entire $30,000.00 as margin. Third, I don’t want to buy GG at $30.00: I want it at $29.29. Since there’s no 29.29 strike price, I moved one strike price lower and concentrated on the $27.50 strike price. I sold 10 contracts of the September 27.50 puts. The price was $0.65 per share, so I put $650.00 minus my commission of $30.00, in my pocket. I did this as a cash-secured put. I would only lose if GG dropped like a rock and closed on September expiration below my strike price of 27.50. Otherwise, the puts would expire worthless, allowing me to keep the $620.00 as net profit. My rate of return is $620/$27,500, or 2.25%. Now look at the odds: I win if the stock stays the same, goes up, or goes all the way down to $26.88, which is the difference between my sold strike price and the premium I received. Since the stock is currently near $30.00, I’ll take those odds, especially since I want the stock anyway. My margin was still $27,500.00, though, a hefty sum. And I could theoretically lose all of it (less my premium) if the stock went all the way to zero. If we could reduce the risk, we could improve our rate of return and sleep better at night. Can we do that? Sure. We’ll use a spread. Let’s go for a refresher here. I like the stock and want to buy it below its 150-day moving average. But I’d prefer to have someone else pay me to buy it there. The cash-secured puts are a great idea, but they involve too much money up front and too much risk. The spread will limit my downside risk. So at the same time I sell the September 27.50 put, I’ll buy the September 25 put. I took in $620.00 after commissions for selling the 27.50 put and paid $0.10 per share, or $100.00 plus commissions for buying the September 25 puts. My net profit so far is $500.00. But now my risk is the difference in strike prices, or $2.50 per share, because I can sell my 25 puts if the stock drops below that at expiration. Since I have 10 contracts, or 1,000 shares, my risk is $2,500.00. My rate of return is now $500/$2,500, or 20%. Not only that, but having $2,500.00 at risk sounds a heck-of-a-lot better than having $27,500.00 at risk. What if you’re not happy with $500.00? Well, 20 contracts will yield $1,000.00 while risking $5,000.00 in this case. Or you can find other stocks and do them at the same time. Your earnings depend on how much trading capital you have; how much risk you can tolerate; and what the stock does after you place the trade. But, most importantly, you have to know how to react under any scenario so you will not panic and make a bad decision if the stock runs against you. After placing that trade, we set a stock alert: send me a text message if GG drops below $27.50. Otherwise, don’t bother me. If we’re retired, it’s off to the golf course. If we’re working, it’s back to the job, and the boss won’t worry about us taking too much time on our option trading since we hope to just let everything expire worthless at expiration. This is certainly a low-risk trade, but it’s not a no-risk trade. You don’t have to sit there and look at your computer at all, as long as you have a reliable alert service. But if GG drops below $27.50 at any time between now and expiration, you’ll have to be ready for an option exercise. All possibilities and what you should do are explained in the spreads eBook, available for $5.95 at www.doctoroption.com. So now we’ve taken in $500.00 in premium and are just waiting for expiration. In the September issue, we’ll discuss what happened after I placed the trade, and the possibilities I had for dealing with it. The results may surprise you. Not a subscriber yet? Subscribers get not only the monthly newsletter, but any special bulletins we put out, plus free email support. Where else do you get that? Imagine making a trade and all goes haywire. Who are you going to contact? You’re usually off on your own, left to dangle in the wind. Your family and friends think you’re crazy for doing this trading stuff, so you can’t call them. But you can contact us, and we’ll tell you what we would do. It’s not a guarantee that you’ll be successful, but you’ll be able to get the second opinion when you need it most. All this costs $27.00 per month. Stop anytime you like, and we guarantee our subscription service like everything else we offer: if you don’t like it, you’ll get a refund for the current month, no questions asked. And, we won’t bill your credit card for seven days after you sign up, giving you a chance to change your mind. We want you to be happy with our service. Sign up here: www.doctoroption.com and click on “Paypal Subscribe.” ____________________________________________________________________________ ___
You can pass this newsletter around to others as long as you keep the website links. You’ll also get a month free if you refer someone else who signs up for our subscriber service. www.doctoroption.com
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