Hi jaytee:
I will try to answer some of your questions as well as input a few more ideas. When I go short on a stock, I flat out short the stock. Reasons: for one, puts expire and usually have a pretty high premium since many of the stocks I select on the short side are very volatile, and, I have not had as much success buying puts. Also, I never sell puts and "cover" a short since I want to be able to exit a trade quickly once I see the trend changing.
While I have made some great returns doing covered calls, I haven't had the time or experience to try using leaps or other option strategies. Now that I am on land for the next few years and can watch the market, I might well do some paper trading and see what else will work for me.
As for a short explanation of the strategy I use for making the calls I have on the market direction, I read the investors daily every day. The second to last page is the most important part, the one with new highs and new lows, and the chart of the indexes. It is hard to fight the trend and once a trend is established or what I call distribution or even a reversal shows up, that is the indicator that the big money is leaving(mutual funds), giving us as individuals opportunities to ride these "high fliers" down some. In a bearish market trend, these stocks will correct about two times the norm or more. Obviously as you can see from some of my picks, i pick the stocks with large recent price increases that I feel are overvalued using a price to sales ratio. And, like igt, if they have significant debt, so much the better. Most people just buy and never research or ask questions and then are "left holding the bag" when the stock collapses.
I am a chart person more than anything but do rely on fundamentals when the stock is nearing what I call "cash value". Look at december for example; I was loading the truck up and actually had to sell some stock at a loss on a margin call. But, even so, I still made out quite well.
Now, for a few more short picks I like with some perpective entry points. cima (>68), igt (>52), ppdi (>55), mscc (>50, but we saw a nice run last week with a quick reversal friday), qcom is a great short and has mega resistance just below 90 (in fact, I doubt the stock ever holds above 90 for long, if it ever gets there), ccmp (current position. looks like an exhaustion gap last week), embt (>50), seic (announced a 2/1 split, wait as resistance is around 100 or so and stock should move up prior to the split), cah (>102, as the stock can't seem to hold above that), slot (mid 50's), ifin (resistance seems to be around 88 to 90), aeos (look at the longter term cahrt which show that double top and all the insider sales as well as being overvalued for a retailer). I haave more on my "watch list", but these are the ones presently I think are the most attractive on the downside.
Currently, I am negative/bearish on the market still. if the 2400 level hold strong on the naz, I may switch my view and position, but if it fails, the bottom is a long ways off and any long positions will get "crushed" as this market corrects and takes even undervalued stocks down with it. I do also have a list of long candidates, but it is much shorter. pcti is nearing cash in the bank levels, aapl, adpt, mtsn, cure, cmos, gems, ifmx (except that it is now at a massive resistance area at just below 8), klic, muei, sfam, ntai, and a few others.
Hope this helps and gives some good ideas. As you can see shorting is an art and timing is quite crucial. Also, it is not for the faint of heart and actually takes more trading discipline than being long some of the "unloved and underowned" stocks.
Good luck this week. It is a whole new options cycle again. |
