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trading strategy, stock watch
[Weekend Summary]
Dear Member,
As the markets retrace or at least tread water a bit, CHINA provided a nice winner today. A positive earnings surprise resulted in a nice gap up this morning. Since the earnings announcement was accompanied by a little warning, I moved a contingent stop to sell my Jan '07 LEAPS calls up tight and the stop was hit not long afterward. I got into the position about 5 weeks ago for $1.25 a share and was stopped out for $1.60 a share this morning. The result was a 28% return before commissions (25.7% for me after commissions).
I did receive an important question from one of the Members after I sent out my alert that I was placing an order to sell the calls on CHINA contingent on the price of the stock. The Member wrote and asked how that was done since his broker would not allow it. The brokerage I use does allow me to place option orders contingent on the price of the stock. I find that ability to be quite advantageous since I don't have to always watch a position. I can place the stop and know I'll be taken out. Many brokers don't provide their clients with that type of service, so it is important to know what your broker allows.
I entered another bearish play on the homebuilders by buying some Jan 85 Puts on Pulte (PHM) on Thursday. So far, the stock has cooperated and dropped 82 cents from Wednesday's close.
I own the Jan '07 $7.50 LEAPS calls on Knight Capital (NITE) and the stock was up $0.30 for the week. It stopped right at resistance, and remains in an uptrend. I would like to see it break the current resistance and, if it does, I may well add to my position. As long as it remains in the uptrend I'll stick with the position I have.
The major indices, Dow 30, Nasdaq, and SP-500 are right at the 50 day moving average and, of course, so is SPY which emulates the SP-500. I am still in my Dec '07 115 and 120 calls, but am waiting to react if the 50 day is broken. My reaction could be to sell my positions or bring in some income and reduce risk by selling some calls against the LEAPS I own.
You may recall, I used that call selling strategy on Micron (MU) by selling the Jan '06 12.50 calls against my Jan '07 10 calls.
EBAY and YHOO both retraced this past week, but each is still in a short to intermediate uptrend. SEBL looked like it may be getting a little life, but was only up a dime for the week. It remains on probation with me.
Briggs and Stratton (BGG) has been in an uptrend since May and I am still naked the Oct 35 Puts. The stock closed the week +$0.95 at $35.08.
Volatilities are moving up and that may well be a bearish signal. As I mentioned earlier, the major indices are right on the 50 day moving average. A close below that line coupled with the increasing volatility could forecast a pretty significant bearish move in the market. I believe it is a time to keep stops tight on bullish positions and to be prepared to play bearish if the market turns.
DON'T FORGET, SEPTEMBER IS FREE TO MEMBERS AND TRIAL MEMBERS. I'LL BE TRAVELLING FOR PART OF THE MONTH AND WON'T BE TRADING DURING THAT TIME. I'LL ISSUE ALERTS TO DEFINE WHERE MY STOPS ARE WHEN I'M GONE SO ADVERSE MOVES WILL TAKE ME OUT AUTOMATICALLY.
I hope you've had a great summer and your fall is even better.
Bill
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