CJ Owen..Options..Earnings .... OBSERVATIONS.. I get in when the 'underlying' stock reaches my buy point..
2) usually do not buy more than 10 calls no matter how attractive a play looks. If the market is uptrending and the company is still upticking I hold it... I usually choose companies that will give me at least (or 25%) return on the option within a range of 1 day to 3 days. I like to play at least 4 companies like that a day and I've found no better way for such returns without 'tying' up 150k+ in cash.
3) The stocks I choose must have a daily range of .5 and usually have about 2+ points range intraday. They will move because they're earnings are going to be released and that lights a fire under them 100% of the time.. so you're not talking about options that 'decay' because the stock is going nowhere.
These plays can also be stocks that are 'most active', have appeared on my nightly 'scans' or have 'news' from my REUTERS real time data. ..For one reason or other they are STOCKS THAT MOVE....
4) Their volume ratio was computed the night before and had to pass the stringent: "1/30 day 150% above 30 day average volume" test, and some equally stringent technical analysis, so I know I'll have a chance for a high volume, big mover option/stock... these make good daytrades.
5) I bail when I see signs of losing steam, usually they don't for a couple of hours, as they are picking up steam when I buy them. I've seen some amazing plays unfold (i.e. SEBL, ORCL, AAPL, SCI, ASND,MSPG, actually running up towards the end of the day within minutes in anticipation of a 'good' earnings report the next day)
These I could either sell immediately or sell at the open the next day and 'catch' any further gap up.. This depends so much on the company, external market factors, that a general statement can't cover all possibilities... I've had AFLX, MSPG and SEBL for over 3 days, yet I've sold other companies that I bought in the morning by afternoon as any daytrader would.
6) I have my 'favorite hall of famers' that I mostly always use for daytrades, whether they be options or stocks. Stocks included in this list are past "street beaters" with over 75% EPS growth and in some cases 3 digit growth.. (i.e. SEBL, TKLC, QCOM, JBIL, BKE, AEOS, ANLT, CPWR, IMIC, CTXS, TER, XRX, BBY, CNTO, THRX etc.)and of course the inimitable oil service stocks. (ya gotta either love em or hate em)
RISKS OF DAY-TRADING/SHORT TERM TRADING OPTIONS:
1) Expect to lose 50-75% of the option immediately if the stock doesn't meet expectations or for any other reason downtrends the same day or next.
2) The spread is bigger than the spread on a stock so you will not get the 'entire' run up... but then you haven't spent the 10's of thousands to buy the stock so it's about par for the course.
3) I still prefer and, if I had the means, would buy the STOCKS whenever I could... It is neater, you can get a chance for the stock to rebound, and you actually have an asset, whereas an option is not an asset, nor is it anything of real value... Just a chip you can cash in for only a limited time span... it expires after that!
4)The worst danger is holding more than 4-5 options overnight. If there is a general market decline of over 200 points you lose it all... but adhering to some basic guidelines, it hasn't happened to me since October 28...
Still I like options for earnings plays because if your stock get unusually 'killed' as was the case of PWAV, TLDCF, ORCL, IOM.. you only lose the amount of money you put into the option... |
