hello, all, again...I promised to impart useable, learnable lessons, on the "art" of taking advantage fo the puts/short side of the "PSYCLE sm", here is your first lesson: (you may e-mail me with other specific questions, but, as requested here, I will not mention any specific issues, just TEACH you, here...I have a lot of experience at this)
in no particular order, here are some general "PSYCLE putting" tenets to acknowledge:(please understand, I am starting with the very basics, so, if you know this, please be patient, and stay tuned for more sophisticated lessons from me here, in the future) just trying to help
note: obviously, doing this must be suitable for one's diversified portfolio, and fit one's needs/objectives, and knowledge level...right
* PSY-chologically, (and mathematically) the "short" side is no more inherently "risky" than the long side ....any unfounded fears most people have, is all in their mind, and because they either fear something about which they know not, or, have that wonderful (mis)belief that "to ever seek to exploit the down side in anything is somehow unamerican", or have not noticed tons of stocks falling at times, in recent years (just kidding)....actually, since we all have seen many issues Decline at times, and this happens to several every day, nothing could be MORE "american" than doing, what is proper, when any issue tops, that is, selling, or shorting, or buying long-term, in-the-money Puts, if suotable, with stops, etc. it is also, because people say they do not "like" or are not 'comfortable" with things they have never tried properly...the PSY-chology of the down side is the initial KEY to mastering this....the most important thing....
* one cannot judge any strategy by just one or two attempts at it.... then quitting (as many unfortunately do), or even doing it "on paper" (but, "on paper first" is a good idea anyway)....one must actually DO this, with risk money, THEN give it a yfull year or so, before, and NOT prematurely judging results over too short a time period.... shorting/buying puts, is just as "easy/hard" as going long....hey, SOMEONE is always doing this, at/near every top, of every individual stock, in past history, right ? why not you/us ?
* Logic, and Physics, dictates, that there are ONLY 2 times/places, when going short/buying puts has the highest probability of correctness, with the lowest prest risk:
1) near a top, only after a large % rise, hopefully parabolic, in a issue (or ind. group) which the masses love, and say "it's never going to fall again", only buying your puts, AFTER it has begun to form a "PSYCLE sm" "rolling" umbrella" top chart formation, with a stop just above recent high for protection, and,
2) on the first rise, AFTER such an uptrend has been broken (the snapback), with, again, a stop above recent high for protection....
note: we NEVER "buy after/on breakouts", nor "short after/on breakdowns"....we want to buy Puts ONLY right near the potential top, and NOT chase lower....important to learn....
* most ALL "parabolic rises" end.... and, in recent several years' history, have often been followed by normal decent corrections, usually, in 3 stages, which I will explain next time, till stock falls to support level lower....but, occasionally, a parabolic rise, can/will become a "sideways" churning area" before another, usually "measured move" higher (more on this in future lessons, usually only occurs EARLY in a bull market, and we are now currently NOT "early", right ?)....this is why, when Options are suitable, one should ONLY, buy, a diversified portfolio of several, or at least a few issues, of long-term ONLY, (min. 4-7 months out) in-the-money ONLY, puts...dig ? that way, if a S.T. top turns into a protracted sideways rolling formation, your options will retain a higher % part of their value, than "S.T., out-of-the-money" options, which my "PSYCLE sm" NEVER Buys...important....you must be in-the-money, and also buy a lot of time.... if you are correct, you will still make high % gains....and, when wrong, will hopefully lose a lot less....dig ? NO emotion.
* since "shorting" can be more difficult (borrwing stock sometimes unavailable, and uptick rule, etc.), better/easier to just use PUTS options, and lower risk by diversifying, using mental stops, etc., and only buying puts near a top....my "PSYCLE sm" NEVER shorts an issue which has ALREADY fallen a bunch, no matter how bearish it still looks....and, another reason why Puts, beats "shorting," is because it takes less money (a big benefit), allows for more diversification, and can also be used to protect already long positions as well....
well, that's lesson for today, on the "art" of exploiting the short side...printout/save my Cumulative posts here, and, soon, you should have a nice little book.... till next time, thanks for your interest in learing "how to fish", instead of just being "thrown fish".... |
