The market has lately moved in a rather "limited" range. Nasdaq is oscillating around 7 percent on each side of 2,000. Where the market will go from here on is anybody's guess. One day some analysts upgraded the chip sector causing the stock prices chip of companies to spike, yet the next day some news or other analysts expressed concerns for the chip futures depressing the sox index.
We had the last hurrah around December 1999, especially on an excellent company like Qualcomm (QCOM). You will notice that I have a bias towards this company. Since the beginning of the year 2000, some people went 100% cash while others believe in LTB&H and faithfully hang in there. Aggresive funds which invest mostly in technology suffered large losses: Fidelity, Janus, RS Funds, etc etc. All in all, people from all facets if life, including those experienced and smart people generally see their stock portfolio shrinks.
Generally people are using bullish approach in the market. The activities are leaning toward buy and hoping to get appreciation in the future. When the market heads south the choice taken is either sell and hold cash or hold waiting for the storm to pass. On the other hand course if you have shorted the market, you would do better. But shorting a stock requires approval from the broker and is not allowed in tax deferred account. In the Rydex family of funds, there are funds which have the objective of beating the inverse of nasdaq , and they have been doing very well.
What should I do in this rather neutral market? I am looking for a strategy where I can earn a decent return like 3% to 4% a month on my trading account. Can that be done? Maybe. I have been doing covered strangles which generate satisfactory profit.
I have to state that I am an infrequent poster. I like to keep my findings, my references, my triumphs and failures in a file, and this new subject is just that which can fill that need.
This is not to a recommendation to use covered strangle. There is no strategy which is good for all season. This approach might not even work two months from now or a year from now. If the market is very bullish, I would prefer to do synthetic long.
My background is that I have a Ph.D. in Management Sciences from a major University in eastern United States, and have done options many many years. Nevertheles, the school of hard knocks is the one I like remember most when I do options. Therefore, I am not going into complicated model to analyze a situation. This is not a lesson in option. There are excellent books about that, and there are many experts on SI who can explain all aspects of option.
The main ingredient needed is common sense. The approach is KISS so that we can easily track our exposure.
Please do not ask me about specific stock since I do not follow. The only one I am familiar with and comfortable with is QCOM.
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