OK, if we are weak until the court decision, are you all agreed that a rally will follow the decision? If so, why not buy calls of the beat down companies? MXIM is looking good right now - even though I am going to loose on my Dec calls. If I am in the red in Dec calls and I think it will rise with the next rally, should I sell MXIM dec calls now and pick up something with a little later date? Any ideas anyone?
While a week ago or so, I was looking forward to such a rally (i.e. after election day), the way the market has behaved in the last few days, makes me doubt that any rally would have a lasting strength.
I think that the mentality, (not to mention the pocket-book), of many... "would be investors" have now been hurt to the point of not being convinced that stocks are necessarily the best investment around.
More and more I am of the idea that in spite of the resolution of the election farce, the expected rally may not be that strong... (I guess you could say, that I have changed my mind)
Buying calls, in addition, has the "time decay" component, therefore, in a market in which we are under, it s not the best strategy, since the market is going to need SOME TIME in order to regroup before any serious upward movement can be considered. (my opinion).
Unless the market shows me a renewed strength, in the form of improved volume to the upside... I have now joined the camp of those who we will see lower levels before any serious change of trend would take place.
Selling calls seems to me a better strategy, particularly using strike prices, slightly above resistance levels, so in case of a rally, resistance would most likely stop the price from rising above the strike chosen. Here, time decay works in your favor, particularly on those fat premiums.
The above is MY OPINION ONLY [and I reserve the right of being WRONG] -g-
If you own positions under a long term plan, this is a good environment under which selling covered calls (strike, obviously placed above your basis), will bring additional revenue to the account.
On the other hand... If you have the patience (and the capital), this is also a time to be selling puts on the companies that you like, and/or in which you have already open positions and you want to increase your holdings on the same.
You have to be careful that the strike prices of the puts are placed at a level where the "downsize" potential is not a high possibility.... other wise you will be put the stock at a substantial higher price than the eventual market price. --worse even than the put premium received.
I tend to favor this second strategy... but I have learned patience and I also love receiving the premiums. Once I own the stock, I sell quite aggressively the covered calls, letting the premiums add up... (by that I mean that I place the strike prices slightly above my basis, and focus on the size of the premium)
Let the market help you with your empire building strategy -g-
Personally... I am merely watching, I have had a good year... at this point tax considerations are in my mind, rather than a possible rally -g-
I hope this did not make the picture more confusing (than it already seems to be.
NOW remember.... The above are MY OPINION ONLY, and are NOT risk free, indeed they carry considerable risk, but I am prepared to run it [--and I promise not to cry like a politician if I lose--] -g-
Finally, I would have responded sooner to your post, but I became distracted by the Market Fairies of sorts -gg- |
