Hi Nate,
Let me shed some light on Scott's post. The rationale is knowing where
the stock may head and why! The rationale is going to our tool shed
and taking out the right tool. In short, we have a game plan for this
round of play. It is important that you understand the thought process
Scott used. Scott was right on the money with his comment. And, I can
tell Scott and I where on the same wave length just by his comment.
Why? Because, anyone that has been reading charts has most likely
encounted this exact stock price movement or pattern. The patterns
only point out the outcomes of buyers and sellers. When I see a
rainbow in the sky, I KNOW IT MUST OF RAIN in my area and that my line
of sight is viewing that rainbow. It is a fact! Well, those chart
patterns come real close to documenting people!
We all should be striving to use options as a "strategic" tool for
our investments, just like Larry McMillan's book illustrates. Scott
looked at the big picture by looking at the historical price movement
of S by first checking the plotted chart patterns. He included data
going back five years. The chart plots indicated flat "staging" steps
in the $40 range and the one before that at the $20.00 range.
Now, here is where experience and a knowledge of crowd psychology or
the "herd mentality" comes in. Market makers and the funds will do the
same thing. They will seek to set up the masses of little guys.
PONDER THIS
You paid $40 for S and a few months later S reaches a new 52-week
high (Last June around $65. You did not write CCs because you don't
know how or you think they are too risky because your useless order
taking 24 year old broker(who still lives with mom) said so. You
have been watching S come down, down, down.
You feel like a jerk and you are feeling the pain in your gut! You
call your wanabe broker and ask for his/her advice, and they tell
you, "you must learn to be a long term investor. Do you think Sears
will go out of business? Of course not, just hang in there!" Well,
that does not take the worry and pain away! Because, if S does drop
below that $40.00 you and thousands of other people are going to dump
S so fast you will cause a mini panic! That is the stock market and
the market makers can and do cause those panic selling events with
large blocks of purchases.
Now, what does it all mean? Scott was only pointing out the one of two
possibilities for S at this point! He is 100% correct! Folks, it does
not matter what S does. You and everyone else can make money! "Let the
trend be your friend!"
I like S at these levels! That chart pattern is a welcome pattern for
me. I can live with riding S down to $20 if that is what happens.
There are PUTs and you can short the stock and make money! You can
write deep in the money CCs and hedge your drop as well! Personally,
I think it will move sideways and upward again. But, if it does not, I
would be ready to act in stock repair tactics.
This has been a long answer. But, if you are missing understanding
you should be doing what you are doing. Asking smart questions. There
are NO DUMB QUESTIONS when it comes to REAL MONEY!
iqc.com |
