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EMAIL FROM THE READERS
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Hello Rick,
Before I forget, I have attached a sample of what that BB scan report now looks like on the web site. Now, for your questions.
Question >>>>>> I had a scenario I wanted to run past you. I have had some success over the past few months finding good movers with the CANSLIM method. One of the tenants of smart trading is to have a stop loss 8% below the stock price. If you are taking profits at 25% and your stop loss is 7% you can be wrong 3 times for every one time you hit your profit goal. This seems very feasible if you are also buying the best stocks, in the best industries. THEN IT OCCURED TO ME...WHAT IF I TURBOCHARGED AND MINIMIZED MY RISK THIS STRATEGY WITH WINS METHOD?
Hummmm? Watch the investing math on the 7% losses of three times. For example, $1,000 starting capital with a 25% ($+250) profit yields $1,250. If you had just one 7% loss (-$70) would leave you with $930. Thus, to get a true 25% gain off the original $1,000 you would then need to make $1,250 - $930 = +$320. That $320 means you need to earn at least +34.41% ROI. In short, you have to work harder to get that 25% true rate of return.
Question >>>>>> What if instead of buying deep in the money calls I purchased at the money leaps and sold far out of the money calls in these explosive stocks. THE GOAL WOULD BE THAT THE PREMIUM SOLD FROM THE SHORT TERM CALLS COULD OFFSET AT LEAST PART OF AN 8% DROP AND YET STILL ALLOW ONE TO HIT A 25% PROFIT TARGET (in the underlying stock) THEN YOU HAVE AN AWESOME AND POWERFULL SYSTEM!!!
To summarize what you said, you buy the ATM LEAPs calls, wait for some price appreciation, and then write OTM call spreads a few months out. If you pick the right stocks or indexes you could make out. Mind you! You need to only select stocks or indexes which are going up in price in order to make this work. Once (if) the current price drops below your original LEAPs strike price, you are starting to get into the pickle. Your rate of return is impacted and your written calls spreads will bring in less income.
Question >>>>>> What are your thoughts on the best way to structure that position? I know in the manual you talk about just buying the leap to increase the "nut" and then selling the calls. There is also the strategy of selling only 70% of the short term calls. In addition to those 2 things is there anything you would add to my logic?
Correction! To DECREASE the "nut" by generating income. Good questions Rick. It's good that you are thinking things out FIRST!
Great questions my investor friends....
Herm |
