Covered calls are calls that you are selling while you own the stock.
So for example you buy a 500 stocks for 38$ and decide to keep it for a while.
And you find that you can sell call for them for three month for the strike price (sell price) of
40$. For selling this calls you get paid 2.5$ per stock.
If the stock rises above 40$ before the three month are over you will have to sell the stock to the call buyer for 40$. So you made:
500* 2.5 + (40-38) * 500 = 2125$ you made 11.2%
If the stock rises doesn't reach 40$ before the three month are over the call buyer will not be interested to buy the stock from you.
So you made:
500* 2.5 = 1125$ you made 5.9%
If the stock falls bellow 38$ at the end of the three month the call buyer will not be interested to buy the stock from you.
So, on selling the call you made: 500* 2.5 = 1125$
But, on the price fall you lost... if the price didn't fall more than 2.5$ you still made some money...
Searching for covered calls
Goto Searches-> Covered calls -> investools method cover calls.
Same with ETFs
Wednesday, August 19, 2009
Options
Call - if I sell a call I promise to sell the stock in the agreed upon price if the buyer of the
call will be interested in buying it from me in the future.
This obligation of mine will expire on the agreed upon date.
if I buy a call I am guaranteed to be able to buy the stock with the agreed upon price if
I will be interested in it in the future.
This guarantee to me will expire on the agreed upon date.
Put -if I sell a Put I promise to buy the stock in the agreed upon price if the buyer of the
put will be interested in selling it to me in the future.
This obligation of mine will expire on the agreed upon date.
if I buy a put I am guaranteed to be able to sell the stock with the agreed upon price if
I will be interested in it in the future.
This guarantee to me will expire on the agreed upon date.
An example of buying a call versus Buying the stock.
Stock price is 47$.
buying the call cost 3.5$ with the option to buy the stock for the price of 45$ during the next 3 month.
So you will spend 350$
After one month the stock reach 51$ and you buy it. You made a profit of (you have to buy packs of 100):
100*( 51-45-3.5) = 100* 2.5 - 250 which is 71.4%
If you would buy the stock you would make:
100*(51 -47) = 100 * 4 = 400
but because you invested 4700$ you made only 8.5% on your money!!!!!
Huh?!.... but don't forget that if the stock would go under 45..... you would lose 100% of your money......Urg......
call will be interested in buying it from me in the future.
This obligation of mine will expire on the agreed upon date.
if I buy a call I am guaranteed to be able to buy the stock with the agreed upon price if
I will be interested in it in the future.
This guarantee to me will expire on the agreed upon date.
Put -if I sell a Put I promise to buy the stock in the agreed upon price if the buyer of the
put will be interested in selling it to me in the future.
This obligation of mine will expire on the agreed upon date.
if I buy a put I am guaranteed to be able to sell the stock with the agreed upon price if
I will be interested in it in the future.
This guarantee to me will expire on the agreed upon date.
An example of buying a call versus Buying the stock.
Stock price is 47$.
buying the call cost 3.5$ with the option to buy the stock for the price of 45$ during the next 3 month.
So you will spend 350$
After one month the stock reach 51$ and you buy it. You made a profit of (you have to buy packs of 100):
100*( 51-45-3.5) = 100* 2.5 - 250 which is 71.4%
If you would buy the stock you would make:
100*(51 -47) = 100 * 4 = 400
but because you invested 4700$ you made only 8.5% on your money!!!!!
Huh?!.... but don't forget that if the stock would go under 45..... you would lose 100% of your money......Urg......
Tuesday, August 18, 2009
7 Steps Investing
Psychology - prepare
Protect Investment Capital (Money management and diversification)
Analyze from Top-Down
Analyze Fundamental
Search for Additional Strong Stocks
Technical analysis
Manage your protfolio
Protect Investment Capital (Money management and diversification)
Analyze from Top-Down
Analyze Fundamental
Search for Additional Strong Stocks
Technical analysis
Manage your protfolio
Monday, August 17, 2009
Technical analysis - A buy signal
When support is broken it becomes the new resistance.
When resistance is broken it becomes the new support.
Area around the moving average considered support or resistance.
Moving average is good when the stock is in the trend
Red and green arrows around the moving average signal that the price move below or above the 30 days moving average. They are permanent only if the price was the closing price.
MACD -Moving Average Convergence Divergence - its center called the signal or the zero line.
It is the short term indicator. If you see arrows then pay attention to the rest
Red and green mark the point that the MACD crosses the zero line.
STO -Stochastic indicator. It uses the 25% (oversold) and the 75% (overbought). Don't
react just because the stock is in that area. Wait for the arrows and confirm with
other indicators.
Phantom Arrows- When the 25% or the 75% lines are not crossed but the indicator
change its direction - we can view it as having an arrows whose color is determined by
the direction of the STO. But, still, the closer the turn to the 25% or the 75% it is more
significant.
Volume - spikes in volume may mark the beginning of a significant trend. Spike is at least 50%
more than the usual.
Buy sugnal- uptrend stock with three green arrows.
Sideway stock with three green arrows and a volum surge.
Get into the trade as close as possible to the closing price of the day with the most
recent green arrow (the three arrows don't necessary have to be in the excat same
day).
Don't forget the stochastic phantom arrow:)
So to buy a stock:
check phas 2- F/E >=3.25, Price Patter >=2.5
Good price pattern -
Strong industry group - In the top 20%. It has to be stable and rising for the last 2 month. If
moves sideways it is still ok if other requirements are met.
Also, if all the market is rising it is possible that your group is not
80% or above. You can skip this signal in small industry group
of < =10 stocks.
Institutional money coming into the stock - volume at least 50% higher than normal
or accumulation/distribution >=60 (you can see it in phase1)
Also, make sure that when the volume is high the stock is going up and not
down :)
When resistance is broken it becomes the new support.
Area around the moving average considered support or resistance.
Moving average is good when the stock is in the trend
Red and green arrows around the moving average signal that the price move below or above the 30 days moving average. They are permanent only if the price was the closing price.
MACD -Moving Average Convergence Divergence - its center called the signal or the zero line.
It is the short term indicator. If you see arrows then pay attention to the rest
Red and green mark the point that the MACD crosses the zero line.
STO -Stochastic indicator. It uses the 25% (oversold) and the 75% (overbought). Don't
react just because the stock is in that area. Wait for the arrows and confirm with
other indicators.
Phantom Arrows- When the 25% or the 75% lines are not crossed but the indicator
change its direction - we can view it as having an arrows whose color is determined by
the direction of the STO. But, still, the closer the turn to the 25% or the 75% it is more
significant.
Volume - spikes in volume may mark the beginning of a significant trend. Spike is at least 50%
more than the usual.
Buy sugnal- uptrend stock with three green arrows.
Sideway stock with three green arrows and a volum surge.
Get into the trade as close as possible to the closing price of the day with the most
recent green arrow (the three arrows don't necessary have to be in the excat same
day).
Don't forget the stochastic phantom arrow:)
So to buy a stock:
check phas 2- F/E >=3.25, Price Patter >=2.5
Good price pattern -
Strong industry group - In the top 20%. It has to be stable and rising for the last 2 month. If
moves sideways it is still ok if other requirements are met.
Also, if all the market is rising it is possible that your group is not
80% or above. You can skip this signal in small industry group
of < =10 stocks.
Institutional money coming into the stock - volume at least 50% higher than normal
or accumulation/distribution >=60 (you can see it in phase1)
Also, make sure that when the volume is high the stock is going up and not
down :)
Sunday, August 16, 2009
fundamental analysis
Check phase 1 and phase 2 scores.
On phase 1 you need at least 5 green arrows:
Volume Ratio 5/30 Day
P/E Ratio
P/E Relative Ratio
Proj EPS 1M Chg CFY
EPS Growth 5 Yr
Company Growth Ratio
Acc. Dist Current
Cash Flow Growth 5 Yr
Debt/Equity Ratio
Insider Trading
EPS Rank
Price Rank
Group Rank
On Phase 2:
Divided between:
Financials
&
Earnings Estimates
Price Pattern- Best to have one year and 5 years move up.
Volatility- Less is better
Estimates-
Wallstreet estimate: Numbers should increase with the time.
Next 5 years >20%
Mean change should be positive
Company vs. Industry growth rates:
Historical suprises- Always to have a better actual than the estimate.
News- only positive.. of course.. :)
Analyst Recommendations and Revisions-
1-1.5 A
1.6-2.5 B
2.6-3.5 C
3.6 + F
Financials
Return on Equity (ROE):
18+ A
15 - 17.99 B
12 - 14.99 C
9 - 11.99 D
Bellow 9 F
Growth Rates
How quickly EPS has grown compared to sales.
We want (for 1 year):
sales growth >25%
EPS growth > 25%
EPS growing faster than sales
Revenue
We want to see increasing revenues. On the last two years we should compare quarters if we don't have complete date, but earlier years it is enough to compare yearly totals.
Earnings Per Share (EPS)
We should see an increase with the time.
Summery for phase 2 we need:
F/E > 3.25
Price Pattern > 2.25
Volatility 4 (conservative) 2 aggressive
News Pass
On phase 1 you need at least 5 green arrows:
Volume Ratio 5/30 Day
P/E Ratio
P/E Relative Ratio
Proj EPS 1M Chg CFY
EPS Growth 5 Yr
Company Growth Ratio
Acc. Dist Current
Cash Flow Growth 5 Yr
Debt/Equity Ratio
Insider Trading
EPS Rank
Price Rank
Group Rank
On Phase 2:
Divided between:
Financials
&
Earnings Estimates
Price Pattern- Best to have one year and 5 years move up.
Volatility- Less is better
Estimates-
Wallstreet estimate: Numbers should increase with the time.
Next 5 years >20%
Mean change should be positive
Company vs. Industry growth rates:
Company numbers should be higher than industry numbers. Each time it is the opposite a point should be substracted from the grade.
Historical suprises- Always to have a better actual than the estimate.
News- only positive.. of course.. :)
Analyst Recommendations and Revisions-
1-1.5 A
1.6-2.5 B
2.6-3.5 C
3.6 + F
Financials
Return on Equity (ROE):
18+ A
15 - 17.99 B
12 - 14.99 C
9 - 11.99 D
Bellow 9 F
Growth Rates
How quickly EPS has grown compared to sales.
We want (for 1 year):
sales growth >25%
EPS growth > 25%
EPS growing faster than sales
Revenue
We want to see increasing revenues. On the last two years we should compare quarters if we don't have complete date, but earlier years it is enough to compare yearly totals.
Earnings Per Share (EPS)
We should see an increase with the time.
Summery for phase 2 we need:
F/E > 3.25
Price Pattern > 2.25
Volatility 4 (conservative) 2 aggressive
News Pass
Saturday, August 15, 2009
The Big Chart
The big chart may help to see where the institutional money is flowing. I measures weekly percentage of the industry compared to the others. If the rank of the industry is X than the average companies in that group outperformed x percentage of the average companies in the other industries.
Red - money moving out of industry or just staying out.
Yellow- If previous week was green than money moving out of industry ,
If previous week was red than money moving into industry ,
If previous week was yellow than unchanged.
Green -money moving into the industry or just staying in.
Focus on the industries which have the most stocks in them.
To find an potential emerging industry look for one with one or two yellows on the left and on the right reds with increasing numbers written in their square.
To identify potential stocks in a strong industry group
Check the phase 2 score
F/E >= 3.25
Price pattern >=2.5
Place them in a watch list or the portfolio
Looking on best/worst is especially good when the market is going down. It helps to identify groups which are going sideways or going up and resisting the downturn. If they are non defensive groups then they have a chance to rally strong when the market will recover.
Diversificaation
1)Have at least half of industry group of the number of stocks you have.
2)Avoid similar groups.
3)Change when there is group rotation.
4)Rebalance when a group performed very well and is a larger part of the portfolio.
5)Use ETFs
Friday, August 14, 2009
Fundamental investing
Invest with the trend, Don't swim against it!
First, identify direction and pattern of highs and lows by S&P500, NASDAQ and the DOW charts.
Six month snapshot of : INDU (dow), COMPQ (nasdaq)
First, look on the trend which is connecting the lines of the highs and connecting the lines of the lows and after that you should look on the moving average, since it lags the trend.
Second, confirm trend and recognize the movement of different investor groups by market forecast graphs.
Graphs of : momentum -1-2 days, Near term -3-10 days and intermediate for weeks and months. This shows trends but also level of risk because we see the three graphs.
Overbought above 80 - may move lower. When all three signals in this area on the same day, it is a bearish signal. Move stop losses higher to protect gains. You should also check sentiment indicator because the trend can be weak if the sentiment is bullish.
Oversold below 20 - may move higher. When all three signals in this area on the same day, it is a bullish signal.
Clusters happens 8-15 times a year.
Third, identify market long term condition by recognizing the market mood through market sentiment graphs.
When sentiment is up search bullish opportunities. That is the time to buy growth stocks and mutual funds.
When it is down - protect your positions
First, identify direction and pattern of highs and lows by S&P500, NASDAQ and the DOW charts.
Six month snapshot of : INDU (dow), COMPQ (nasdaq)
First, look on the trend which is connecting the lines of the highs and connecting the lines of the lows and after that you should look on the moving average, since it lags the trend.
Second, confirm trend and recognize the movement of different investor groups by market forecast graphs.
Graphs of : momentum -1-2 days, Near term -3-10 days and intermediate for weeks and months. This shows trends but also level of risk because we see the three graphs.
Overbought above 80 - may move lower. When all three signals in this area on the same day, it is a bearish signal. Move stop losses higher to protect gains. You should also check sentiment indicator because the trend can be weak if the sentiment is bullish.
Oversold below 20 - may move higher. When all three signals in this area on the same day, it is a bullish signal.
Clusters happens 8-15 times a year.
Third, identify market long term condition by recognizing the market mood through market sentiment graphs.
When sentiment is up search bullish opportunities. That is the time to buy growth stocks and mutual funds.
When it is down - protect your positions
There are 3 short indicators:
30 days simple moving average.
Moving average converge -divergence (MACD)
Stochastic indicator.
Combine the green arrows on the short with moving up sentiment line and the red arrows with the moving down sentiment line.
The move have to be in the center area between 20-80!
Subscribe to:
Posts (Atom)