My very dear TT,
You have expressed a view that the short and intermediate trend is down with knee-jerk rallies within, since you are taking small long positions to trade the rallies no matter how short-lived. "Small" in the sense of buying calls so that less capital is at risk. I've been mulling over strategies that may prove more profitable and yet provide a degree of protection. And even more appealing if one is "cheap" ...
Strategy #1: When a stock has dropped to key support levels and is oversold, consider a bullish put spread. That is, buy a lower strike put and sell a higher strike in the money put. If the timing is proper, one could make out on both legs of the spread. Using TBR as an example, one could buy Sept 110/115p (200-day mav at 111 or 20-day bb at 117 should provide good support) and sell Sept 130p. For a stock that has 7-9 point intraday flux, one should be able to close out the Sept 130p on the rise and then wait for the trend to play true. If the market tanks, the Sept 115p will do fine ... else chalk it up as expenses for the trade. Since the Brazilian market could fall apart, the long put would be prudent insurance if one insists on trading TBR.
Strategy #2: When a stock is at resistance and showing signs of being overbought, BUY puts one or two strikes lower than the strike where you intend to sell. These long puts should be cheap at this point. Let the stock dance and fall to the proper entry point for shorting puts, then short at/in the money puts for retrace up.
Strategy #1 is also appropriate for a falling knife, on a stock whose behavior one is confident of and plan to acquire. Should the situation similar to LSI tanking present itself again, I will not hesitate to sell the puts for trading the flux.
Strategy #2 is more attractive but requires a bit more concentration. I shall be using this strategy.
Oh, I'm enjoying a glass of Merlot as I post and trust the thoughts are cogent and robust. Your views, please.
My regards on this fine holiday weekend. |
