Hi David: Answers to your questions follow:
1. How do you establish your positions in CREE, JDSU and others with your calls options?
I usually am invested in only 3-5 positions and follow 3-5 more just in case I need to use one to replace a position. Consequently, I follow them closely, like a hawk. I will follow the options stream periodically on them all, especially before entering a position. I will do the math over several days and eventually zero in on maybe 3 or 4 options that seem to have good movement with just a little better price compared to those around it. Normally, I will find one that ends the day sort of out of line with the others in the stream, that is down compared to others and compared to where it would normally close given the price of the stock. That is when I usually put an order in. I always do limit orders, and normally BELOW the bid, as I try to make the market come to me.
2. Do you use TA?
Yes, but not to the extent as someone like Jim Willie. I will follow simple charts, various moving averages (none in particular), and especially the channel charting. I look for trends in the underlying stock. I pay particular attention to the action for the last 2 weeks or so, and then the last 45-60 days.
When I am studying to take a position, it may take days. I will have charts posted on walls in my office here at home and will spend hours laying out what I might do if the market and stock does this or that so I'll be ready to EXECUTE! I do not want to hesitate when the time comes. I want to be confident that the time is now to execute a position.
Also, I will consider the overall market before entering a position. For example, if the Naz has been up 3 days, I will wait for tomorrow on the notion of "up 3, down 2" and hope for a down day to buy. Simple little rules like that make a huge difference.
Furthermore, I am a big believer in "feel" of the market. Voltaire talks of this. Oftentimes my experience tells me that it is time to take a position and my gut will tell me it is time to get out. Amazing how right I am sometimes with those notions. But, that is experience talking I guess.
3. Also since these stocks are very volatile and if you bought calls during any positive news event, then you would pay a premium. How do you minimize your premium and also the risk upon entry so that you are in an uptrend, not down or flat.
I think that I answered this one in my explanations in 1 and 2 above. By doing what I said above, I can shave a bit off the premium. Also, I can minimize my risk upon entry by doing what I said above, especially in 2.
Further, I take on large positions. For example, my broker called the other day to inform me that in one Sept call position of JDSU ITM calls, there were 900 contracts and 700 were mine. Their trader had flagged it. He was concerned should I want to close that position given my heavy weighting in it. I told him not to worry, but thanks.
Rather than buying 10/20 calls here and 10/20 another time, I may put an order in for 100 contracts at a time. The order will be below the bid as I said earlier. I make the market come to me, and it does. Since it is a larger order, that makes someone want to come down and pick my order up. I've seen them go through orders to eventually get to mine, pick it up, then move the price back up immediately to get back more in line with the stock price. This is where it is helpful to do what I described in 1 above, because if I have done my homework, I'll have seen the movement in prior days to signal to me what I could do on that order.
Finally, remember, my style of investing is not recommended as safe. I take huge risks. I take large concentrated positions and am not diversified. I do options only and usually only ITM options. No stocks. I am an odd duck. Wild and crazy. Sometimes I lose a lot, but most of the time my returns are huge. It has taken me years to get where I am with this style of investing. It works for me, but I still spend hours and hours studying what to do. I would not suggest at all that what I do is the best way nor recommend it to anyone. Everyone must do their own thing.
Hope I answered your questions, David. If not, let me know. I tend to start rambling.
Take care.
rr5 ..... Rick |
