Hello John and others!
Welcome to the forum! I see you must have read a very old
posted message since it list my full name. I later switched
to Herm. With that in mind, I want to qualify a few points
for you and the other readers. In particular, Tom K's answer
which I need to tweak because it is an answer taken in
a vacuum with a major WINs approach point missing.
Tom astute response was a valid correct observation if you
are just trading options via traditional McMillan. Thank
you Tom for your input.
But, I sense Tom did not factor in how we apply sideshows
in our study using the WINs approach. I want to make sure
you have a copy of the WINs Powerpoint freebie. That will
provide you with an entire overview of everything we have
talked about over the past three years on this forum. The
file can be downloaded off my web site at:
coveredcallswins.com
Next, a few months ago I gave out a WINs summary table of
for the technical indicators that spells out the conditions
and chart patterns to look for using the WINs approach.
Clearly, it shows at the exact condition(s) to consider
protective puts. One would have to be blind not to know when
to buy them using the table.
That table was only distributed via the
www.coveredcalls.com free newsletter in which I guest write
my WINs Corner column. You can sign up now and get the pass
issues for that table and chart information. The individuals
that subscribe to the newsletter are more serious and follow
in the fun and friendly spirit. They are contributing
investors and not just takers! They are life long learners.
I did not wish to release it here because thousand of
readers come and go on this forum and may not be committed
to learning (because they know it all and are Donald Trump
or Warren Buffett clones :-) and would casually use it and
develope an opinion without much effort or an open mind.
They are the same people that pay and go to national
conferences and walk in to collect the handouts and then
walk out never investing any time in the sessions. They
don't care to share their experience for the sake of those
that know less. It has to be a win/win for everybody!
SIDESHOW PUTs
Do you buy the puts on a case-by-case basis or do you
use firm rules such as: "I always buy puts that cost less
than X% of the premium I got for the CC."
This answer would seem more appropriate. Case-by-case
basis! For example, some folks never buy puts and simply
write CCs at the peak when the RSI is high, upper BB tag is
confirmed, and OBV is starting to drop along with the
volume. In other words, the stock is about to peter out on
as a result of a normal profit taking cycle! Notice, I said
normal. You need to consider what type of stock do you have.
A viper is not the same as DIS or F or GM.
A viper might call for ATM sideshow PUTs because you see in
the chart a trading pattern history of sharp pull backs!
And, the same chart reading will give you a clue of what CC
to write and how far out in months. The combine use of the
PUTs and CCs will give you a profit despite the fact that
the stock price is declining fast. That is how you would
keep you head above water. Are there other ways to do the
same thing? Sure, short against the box which I'm not going
to get into.
My theory is this! If you want to be long in the stock and
you want to make profits in up and down markets, you can use
CCing and PUTs to do that effectively. Example, I have ITDS
CCs which is now DOX and am holding Feb. CCs. I suspected
that DOX would soon peter out and by the Feb. expiration the
time decay would allow me to cover at a profit.
Now, John. Ask yourself this. If I am so sure that DOX will
decline as the chart is telling me, why would I know buy
sideshow PUTs to make it even more profitable? You buy side
show Calls as it goes up and sideshow PUTs on the way down
keeping your finger on the sell trigger along the way?
Or, "I never buy puts that will cost me more than X% of the
premium I got for the CC."
I would use something like the above for stocks coming out
with earnings news or some major announcement. Cheap insurance!
I recall last year a pending merger. I picked up the side
show PUTs only for <$1 and sold them for $7 one week later.
I used my CC dollars from my portfolio to buy the sideshow
PUTs. If I owned that stock I would have done the same
thing. I use the two strike price down as a rough insurance
strike price.
Good question John. You might be interested in the WINs
Interactive Learning Modules I'm coming out with. Those are
the types of real examples I'm using with chart docs to
reinforce the concepts.
Thanks for the question...... |
