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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study! -- Ignore unavailable to you. Want to Upgrade?

To: Dnorman who wrote (8082)	8/4/1998 1:12:00 AM
From: Dnorman	Read Replies (1) \| Respond to of 14162

Herm: Can What you take a look at LVLT? The chart looks like a potential put candidate. Thanks Dennis

To: Dnorman who wrote (8082)	8/4/1998 5:42:00 PM
From: Herm	Respond to of 14162

Here are two critical concepts you need to keep in mind when trading in the stock market. Man, did I learn this the hard way! OOCH! 1. Supply vs. demand. 2. Let the trend be your friend! Bears Beat Down The Stock Price! Short interest (shares of stock) must be eventually repaid to the loaner (brokerage firm/share holder). The more short interest the more liquidity (increase in floated shares on paper), the more liquidity the more supply of shares, the more supply (sellers) of shares vs. the demand (willing buyers) the lower the selling price.... Economics #101 etc. FOOD FOR THOUGHT! You have to agree! Have you ever observed that it usually takes much less time for a stock price to radically drop like a rock. Yet, it usually creeps along bit by bit to a peak. That's like climbing up the steps to a high diving board. You walk real slow and careful because it's wet and it may be dangerous. The stock price move alone just as slow and careful. When you get to the top of the diving board and you jump, you come down pretty fast into the water and create a big splash if you weight as much as I do! Well, plunging stock prices seem to hit the water faster than you can say, "what happen to all my money?" Ever hear of a stock moving from $40 to $10 in two weeks time! Just check out the charts out there and you can find alot of "road kills." Everybody tries to exit out of the same exit price just about the same time! As the price drops, it causes pain and when the pain becomes great enough investors fold until the big splash. Institutions protect their profits by using that vast sums of money to hedge their positions by "shorting against the box." That means they buy an equal amount of shorted shares to lock in their profits in their positions. The result is they are neutral in the position. As the stock price goes down, the shorted stock position offsets the lost in the stock price. If the stock price goes up, the shorted position goes down in value. CLUES TO WATCH FOR Day in and day out, I believe that our BB and RSI indictors will do a great job to pinpoint stock pivot points. You can see and figure out how much money the MMs and Funds have invested by the volume of shares traded. Afterall, you and I can't buy up 50,000 blocks if shares. It must be the big money! If so, then we have the date and recorded total of all those purchases. If the prices continues to increase and more blocks are traded, you can bet it is the same people averaging down their positions and increasing their holdings. Hence, we have a trading pattern plotted in a chart! No other instrument could present this information better. Each stock cycles up and down and eventually tags those BBs. Major Market Corrections When the market is overextended, we need to play a game of musical chairs with all the stocks. The big difference is we take more than one chair away before the music stops playing. :-) Depending where the individual stock is in it's trading cycle, depending what the P/E value is vs. the industry group will determine how much the stock will drop. In short, if the whole group is extra P/E rich (like the technology internet stock right now) you can bet you will see them hit very hard. They are usually oversold to the point they are become bargains once again. Grab those musical chairs (stocks)folks! Because, those of you who grabbed a chair first (held onto their money) will get to play another game. After The Splash, Make A Dash! Remember the supply vs. demand concepts above? Well, the flip side to all that is the short squeeze. More demand and less supply means higher $$$ prices. Why? Borrowers of the shorted stock must cash out by (covering and are squeezed) buying stock in the open market to repay the loaner(s). Remember, the big money is protecting their positions by shorting against the box. Great! The MMs just jerk up the price over and over again as they start to buy to cover. In fact, you will see the options exercised first in order to dry up and create a "squeeze in the stock supply". Hence, the term "short squeeze." Summary! If you understand the above processes it will not come as a surprise when they do occur. You need to know what you will do before it comes and what you will do when it is over. You practice your fire drills in order to have an escape plan. Well, it is no different with CCing. This week I have been buying PUTs here and there because the market is making a correction and it is easy money to piggyback on that trend! I will exploit that trend as long as it exist. Lately, we have not had really extended corrections in the overall markets. Many new investors are novices and will have their money stripped from them! The law of the investment jungle I guess. You need to make the trend your friend! Go with the flow! May the force be with you! Make any sense?