"....So, Tom! Answers to some hard info would be great. ..."
Herm, I'd be glad to respond if it will help as I have learned a great deal from others on SI (including you).
First let me explain that my strategy is to generate regular income from my trading activity. Therefore I am not interested in owning stocks, and I try to stay in cash as much as possible. Keep this in mind as you read my responses to your questions.
1. What do you normally use as your technical indicator(s) to determine a stock is bottomed out?
I'll watch the BB's and RSI and attempt to sell when near the bottom band and lower half RSI..... but read that as a guide, not a hard rule.
2. What type of stocks do you look for and where? Have any web sites we can check out?
This is the most important part of my approach. I try to deal only in the best market leaders, i.e, earnings, growth, revenue direction, relative strength, capitalization, market leadership, etc., etc. This is where I spend the bulk of my effort. I've found that when I dealt in low quality issues, I wound up with low quality results. Most of my research is with IBD and some Value Line. I then follow up with the on-line charts, SI threads, Thompson's assessment, and Yahoo news.
3. How do you determine how many PUTs to sell. Are you naked or do you have cash to back up the PUTs?
I am clearly naked on the trades, i.e., not backed by any equity position. My broker has collateral requirements that I must maintain, so yes there is cash in the account (which he also pays me interest on, by the way).
4. Do you average down the stock if PUT to or do you go naked on PUTs in which you have no stake in the stock itself?
I rarely allow a stock to be PUT to me. However, if I do, then I'll sell CALLs to reduce the basis until I can get rid of it at a profit. This can take a long time and does tie up capital while it's happening.
5. How often do they PUT it to you and why is that?
Rarely and only because I allow it.
6. What kind of ROI do you experience on say a round of PUTs?
My ROI is not computed on an individual trade. My approach calls for a minimum of 30% annualized on my base each month. Therefore I sell a batch (4-6) of PUTs (must diversify) where the total premiums exceed my target. Then I stop for that month. Could do a lot better, but greed can be a killer and I have found that this risk level lets me sleep. BTW, the current strong market allowed me a 52% annualized return last month.
7. Can you describe the mechanics of what really happens when they PUT it to you! What does the brokerage do.
In other words, how do you settle the exercised PUT.
You generally know in advance if it will be PUT (at expiration day) and the process is simply that the stock shows up in your account on the Monday following expiration and you are debited the cost plus the commission on the trade. Sometimes the broker will call on Sunday to let you know. It is rare that you will be PUT in advance of expiration (has never happened to me) because the person exercising the trade would lose money because of the remaining time value in the PUT. They would do better to simply sell their PUT rather then exercise. However, should they exercise, and you get the assignment, and you don't have the full cash to settle within 3 days, sell the stock immediately. If this make you nervous, buy a protection PUT (spread) that then defines your maximum risk.
Sorry for the long answer, but you asked a lot of questions.
I believe that the most important key is to have a plan that spells out for you what you are trying to do. Stick to the plan.... if the plan doesn't work, update the plan. If I didn't maintain this discipline, than I'd be all over the place chasing every new "technique" that seemed to work only to tally up at the end and feel disappointed...... I've been there, done that.
Hope this is helpful.
Tom |
