Not sure why we stayed on an erroneous market correction thread that was over 2 years old, so creating a new thread for real time and forecast postings. I travel frequently and some airlines have wifi allowing for continual observation of markets.
I'd like to suggest this thread not have any posts on "picks" or predictions that were not previously posted in real time for validation. Trust me - no one wants to hear about our awesome "moves" that have no verification.
With those basic ground rules established, the current update is a macro-market look based on the posted recognition of a clear reversal spike from the most recent sell-off. The last postings on the old thread were ones validating the lower channel support volume with anticipation of a further move above recent consolidation at and slightly above that lower identified channel. Once we broke above short-term resistance this morning the DOW has "popped" positive by 221 points and S&P up over 23.
Day traders who have been buying the lower channel technicals will be looking to leverage their trading by taking a portion of those buys off the table, creating a natural protection against holding on to remaining shares. Professional day traders love nothing more than working with the "Houses" money.
Swing traders, like me, bought major positions on the 500+ down reversal day and hold looking for at least a 50% retracement upward towards the upper channel resistance. As previously indicated, that is around the 17,250 mark which makes a 50% retracement at 16,650 area. It doesn't mean a swing trader won't move on taking profits if certain stocks make quick larger jumps (10%+ ROI) in a short period. FB is an example of this on the charts.
When markets approach that mark Swing traders will lock in 100% of the profits. However, how they do so varies. My approach is typically a 2-phase strategy. I sell 50% of all buys outright. I then use options to protect any reversal back down. Example: If I am up $30k on Stock A, I take $15k in profits via 50% sale of stocks. Knowing I have $15k in profits in remaining 50% I will either buy Put options against those shares at a price as close to current stock price where the strike price costs no more than 20% of the remaining profits. In this example that would be no more than $3000 in Put options.
Depending on the underlying stock value I might instead SELL (become the market maker) CALL options against those remaining shares. I usually take this approach on high dollar stocks. FB is at $111. Entry price is $96.42. Let's say I was wanting to use the above approach right now. I sell 50% of 1000 shares meaning 500 x $14.58 = $7290 locked in profits. This leaves $7290 in unrealized profits that should continue to work higher over a trend period. I could sell 5 call options (each option is 100 shares of underlying stock so strike price is multiplied x 100). The Feb 19th FB $105 Strike Price is currently bid at $7.80 so for 500 shares I could sell 5 call options x $780 = $3900 I'm paid for giving some other guy the right to "call out" my 500 shares if the stock is trading above $105. That makes my effective sell price $105 + $7.80 = $112.80 or an aditional $1.80 more than the current $111 stock price. Conversely if FB drops back down then I have $3900 guaranteed as an offset to wherever the stock price goes. That is equivalent to $7.80/share for the 500 shares or $103.20 effective price.
Another nice thing about selling call options against stocks is that options degrade over time if there is no upward movement. Many times I have bought those call options back under $0.50 when the stock price is hovering around the strike price into options expiration. The best part? You can turn around and do it all over again on those same shares!
Happy trading!
I'd like to suggest this thread not have any posts on "picks" or predictions that were not previously posted in real time for validation. Trust me - no one wants to hear about our awesome "moves" that have no verification.
With those basic ground rules established, the current update is a macro-market look based on the posted recognition of a clear reversal spike from the most recent sell-off. The last postings on the old thread were ones validating the lower channel support volume with anticipation of a further move above recent consolidation at and slightly above that lower identified channel. Once we broke above short-term resistance this morning the DOW has "popped" positive by 221 points and S&P up over 23.
Day traders who have been buying the lower channel technicals will be looking to leverage their trading by taking a portion of those buys off the table, creating a natural protection against holding on to remaining shares. Professional day traders love nothing more than working with the "Houses" money.
Swing traders, like me, bought major positions on the 500+ down reversal day and hold looking for at least a 50% retracement upward towards the upper channel resistance. As previously indicated, that is around the 17,250 mark which makes a 50% retracement at 16,650 area. It doesn't mean a swing trader won't move on taking profits if certain stocks make quick larger jumps (10%+ ROI) in a short period. FB is an example of this on the charts.
When markets approach that mark Swing traders will lock in 100% of the profits. However, how they do so varies. My approach is typically a 2-phase strategy. I sell 50% of all buys outright. I then use options to protect any reversal back down. Example: If I am up $30k on Stock A, I take $15k in profits via 50% sale of stocks. Knowing I have $15k in profits in remaining 50% I will either buy Put options against those shares at a price as close to current stock price where the strike price costs no more than 20% of the remaining profits. In this example that would be no more than $3000 in Put options.
Depending on the underlying stock value I might instead SELL (become the market maker) CALL options against those remaining shares. I usually take this approach on high dollar stocks. FB is at $111. Entry price is $96.42. Let's say I was wanting to use the above approach right now. I sell 50% of 1000 shares meaning 500 x $14.58 = $7290 locked in profits. This leaves $7290 in unrealized profits that should continue to work higher over a trend period. I could sell 5 call options (each option is 100 shares of underlying stock so strike price is multiplied x 100). The Feb 19th FB $105 Strike Price is currently bid at $7.80 so for 500 shares I could sell 5 call options x $780 = $3900 I'm paid for giving some other guy the right to "call out" my 500 shares if the stock is trading above $105. That makes my effective sell price $105 + $7.80 = $112.80 or an aditional $1.80 more than the current $111 stock price. Conversely if FB drops back down then I have $3900 guaranteed as an offset to wherever the stock price goes. That is equivalent to $7.80/share for the 500 shares or $103.20 effective price.
Another nice thing about selling call options against stocks is that options degrade over time if there is no upward movement. Many times I have bought those call options back under $0.50 when the stock price is hovering around the strike price into options expiration. The best part? You can turn around and do it all over again on those same shares!
Happy trading!
