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us stock market, trend trading stock
Begin part 2 of 3
SUBSCRIBER QUESTIONS
Q: Love your service. Sometimes in your option plays you choose expirations that are several months out while others not so far. Why do you like to go so far out on some option plays?
A: Glad you enjoy the service. Over the years, playing options has taught us that the trend and time are your friends, particularly when the market turns choppy as we have seen of late. With options, time is very important because options expire. Thus time works against you on options you buy, and you need time. Time to let the play work, time to let the trend you are playing work. Those two elements can often make you money in a play even when things get choppy.
They say time is money, and with options you pay for time. It is one of the components that makes up the overall price of the option (along with volatility, intrinsic value, etc.). The more time you buy before expiration, the more you pay for the option. Many option players buy same month expirations (e.g., October expirations in October); they are speculating. They have to be right on the movement AND have the timing exactly right or they will lose. When an option gets within 60 days of expiration it starts to lose value based on eroding time value. When it gets within 30 days, time value is bleeding away rapidly, particularly if the option is out of the money. It can be impossible to ever get back your investment unless the stock makes a huge, fast move.
In investing you want to give yourself the edge. You want to stack the deck in your favor. That is why we focus on stocks in solid patterns ready to break higher, split plays with leaders that often race up to the announcement and the actual split, leaders that test the 50 day MVA, etc. as opposed to randomly choosing a stock with a 'good' name. Even with that we know that stocks can start a move and then stall a bit, or take a consolidation, then resume the move. With extra time that rest period does not cost us much in lost time value, and we don't have to be exact to the right minute in entering a play. Thus we are not continually trying to make up lost ground. It acts more like the stock: when it is not moving, the value is not eroding away on us. That helps take out some of the emotion of option investing.
Accordingly, we always look and see how much extra it costs to get another month or two of time. In some instances the time value is low for a month and we would much rather grab that additional time as long as it does not turn the economics of the trade on its head. Typically it is easy to see if that will happen as it either costs a lot more or not. You will see the demarcation point when you look at the various months available.
It is not perfect; if the stock falls, the option value will fall as well and you may not recover even if the stock does. You still have to enforce loss rules. If the pattern breaks down you don't know when it will recover. If it takes too long, you end up losing more than if you cut your losses and looked for better game.
When selling options (short selling options as opposed to selling options we already own) we put time on our side because the time decay works FOR us along with any price movement in the direction we want. We are selling either the right to buy a stock at a certain price (calls) or the right to put a stock to someone at a certain price (puts). In either situation we are obligated to either produce the stock (if called) or buy the stock (if put). That makes this a riskier strategy, but one that is very powerful because it puts time on your side along with the trend. You have two friends in this situation, stacking the deck in your favor a bit more. We really like selling options and we discuss how we do that in our online seminars in the Options You Can Use Seminar.
SEMINARS ON CD
http://www.stockseminarsonline.com
This is Jon Johnson's own site devoted exclusively to seminars designed to teach you what you need to know about the stock market and stock movement and how to take advantage of those moves without incurring the usual high costs of travel and related expenses usually associated with seminars.
THE PLAYS
Best Plays:
1) OPLK: Nice test and rebound on volume Friday as market sold.
2) ENDP: Very nice handle forming.
3) INTL: Has rolled over to the downside.
4) IFLO: Nice lateral move as the market sells.
5) RBK: Still a nice handle.
6) RHAT: Testing that big breakout, doing so on low volume.
7) TPTH: Nice breakout test.
8) GENZ: Ready to test eh 50 day MVA and then fall.
NEW PLAYS:
Upside:
Play Date: 09/27/2003
ENDP (Endo Pharmaceuticals--$20.8; -0.52; optionable): Drugs
http://biz.yahoo.com/p/e/endp.html
STATUS: Testing the breakout. ENDP is coming back to the 10 day MVA (20.61) in a test of the breakout from a nice 3 month cup base formed mid-June to mid-September. The base sported solid 5 to 2 accumulation (5 up weeks on rising volume to 2 down weeks on rising volume). The breakout was on excellent trade, and now it is coming back in an orderly test of the 10 day on mostly lower volume. Excellent money flow and a relative strength breakout on the breakout move. This is one of the sectors holding up as the market sells, and we are looking for ENDP to make the next strong move higher to step in.
Volume: 506.932K Avg Volume: 875.409K
BUY POINT: $21.75 Volume=1.3M Target=$26.12 Stop=$20.23
POSITION: IUK AD - Jan. $20c (62 delta) &/or Stock
http://www.investmenthouse.com/ct/endp.html
Play Date: 09/27/2003
OPLK (Oplink Communications--$2.34; +0.23; no options): Semiconductor integrated circuits
http://biz.yahoo.com/p/o/oplk.html
STATUS: Testing the breakout. Despite being in tech, OPLK has been working well. It tested the 18 day MVA on the Thursday low (2.06) on lower volume and then blasted higher Friday on excellent volume as the rest of the market sold off. Accumulation in the 3 month cup with handle base is an excellent 5 to 1 (5 up weeks on rising volume to 1 down week on rising volume). OPLK has tested the excellent volume breakout and is now rallying back on strong trade, following money flow higher. Excellent accumulation and price/volume action. Looking to move in on this run back up.
Volume: 2.544M Avg Volume: 651.824K
BUY POINT: $2.45 Volume=978K Target=$3.06 Stop=$2.16
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ct/oplk.html
Play Date: 09/27/2003
STCR (Starcraft--$33.98; +1.73; no options): Boats, trailers, etc.
http://biz.yahoo.com/p/s/stcr.html
STATUS: Testing the 50 day MVA. STCR is 100 years, another great 100 year old US company (Harley Davidson is another) and going strong. It has rallied hard after a great breakout in May from a 4 month base. After running up the short term MVA (10 and 18 day MVA) up to the start of the month, STCR has come back to test the 50 day MVA (31.49) on mostly lower, below average volume. Volume has surged from its test of the 50 day MVA Monday, and it surged again Friday as STCR made another bounce off of that level. Strong action, and if it can clear the short term MVA on continued strong volume we are going to move in. Money flow is surging sharply ahead of price and relative strength is solid.
Volume: 203.623K Avg Volume: 80.934K
BUY POINT: $34.88 Volume=121K Target=$40.15 Stop=$31.38
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ct/stcr.html
Downside:
Play Date: 09/27/2003
INTL (Inter-Tel--$24.41; -1.37; optionable): Telecom processing systems.
http://biz.yahoo.com/p/i/intl.html
STATUS: Double top. We are flipping this one like a burger on a grill. INTL was in good shape but then rolled over on rising volume Thursday and Friday. Friday it broke the 50 day MVA (25.28) on rising, above average volume, falling to some support at 24. After three sessions of falling we anticipate that INTL will try to rally and test the 50 day or some resistance at 26. We will look for it to roll over at that point and start back down. That test of the breakdown is our favorite entry point.
Volume: 366.054K Avg Volume: 275.653K
BUY POINT: Test 25 and then $24.74 as it rolls back down. Volume=310K Target=$22.05 Stop=$25.35
POSITION: TPQ WE - Nov. $25p (-52 delta)
http://www.investmenthouse.com/ct/intl.html
Play Date: 09/27/2003
PLT (Plantronics--$23.83; -0.76; optionable): Telecom equipment (headsets, etc.)
http://biz.yahoo.com/p/p/plt.html
STATUS: Put. Gapped down Friday as PLT struggled to end the week as did many stocks. it broke its 50 day MVA (24.74) on above average volume. It has sold for three sessions as well, and that type of hard selling usually leads to a relief bounce. In this case that would be a test of the breakdown below the 50 day MVA. A failure at that point is our favorite entry point for downside plays.
Volume: 316.9K Avg Volume: 299.207K
BUY POINT: Test twoard 24.75 then $24.25 on the way back down. Volume=300K Target=$22 Stop=$25.05
POSITION: PLT WE - Nov. $25p (-58 delta)
http://www.investmenthouse.com/ct/plt.html
CONTINUING PLAYS:
Upside: Many stocks still look good to the upside, holding up as the market sells.
Play Date: 08/25/2003
GLDN (Golden Telecom--$29; -0.82; no options): Wireless communications
http://biz.yahoo.com/p/g/gldn.html
STATUS: Testing the 50 day MVA (28.66). GLDN plunged Friday but then rallied back furiously on a big spike in volume. They try to sell it, but the money keeps coming back and picking it up. Looking for it to turn that volume into another upside break.
Volume: 306.217K Avg Volume: 183.456K
BUY POINT: New: $30.72 (orig. $30.55) Volume=200K Target=$36.55 Stop=$29.36
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ct/gldn.html
Play Date: 09/09/2003
IFLO (I-Flow--$11; -0.12; no options): Medical instruments
http://biz.yahoo.com/p/i/iflo.html
STATUS: Testing the breakout. Continues to work laterally over the 18 day MVA (10.27) after a strong break higher two weeks back. It got a bit wild in the trading range but it is holding up over that support as the rest of the market sells. This strength in tough times should translate to another break higher soon.
Volume: 306.958K Avg Volume: 339.668K
BUY POINT: New: $11.24 (orig. $9.62) Volume=426K Target=New positions: $13.27 (orig. positions: $11.52; will look at taking some gain there and letting the rest run). Stop=$9.72
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ct/iflo.html
Play Date: 09/20/2003
PPHM (Peregrine Pharma--$2.01; -0.12; no options): Biotechnology
http://biz.yahoo.com/p/p/pphm.html
STATUS: Testing the breakout. After powering higher Monday, PPHM was caught in the overall market selling last week, coming back to fully test the breakout move. Volumw as lower on the test that held just over the 18 day MVA (1.97) on Friday. Excellent accumulation and money flwo remains very strong. Looking for this test to hold and send PPHM back up. We love breakout tests as good entry points for new or additional positions as the test 'proves up' the breakout.
Volume: 1.233M Avg Volume: 1.75M
BUY POINT: $2.24 Volume=2.5M Target=$2.95 Stop=$1.94
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ct/pphm.html
Play Date: 09/24/2003
RBK (Reebok--$33.52; -0.1; optionable): Footwear
http://biz.yahoo.com/p/r/rbk.html
STATUS: Double bottom w/handle. Still in the handle of its 9 week base sporting excellent 4 to 1 accumulation (4 up weeks on rising volume to 1 down week on rising volume). It has used the 200 day MVA (32) as the support at the bottom of the base and rallied up sharply on the NKE earnings news. It has come back to test the 50 day MVA (33.22) on the Friday low, rallying back to hold the 10 day on rising, above average volume. Money flow continues to surge. Just being patient here to let the stock show us a breakout.
Volume: 809.7K Avg Volume: 740.007K
BUY POINT: $34.46 Volume=1.1M Target=$41.35 Stop=$33.22
POSITION: RBK AG - Jan. $35c (50 delta) &/or Stock
http://www.investmenthouse.com/ct/rbk.html
Play Date: 09/18/2003
RHAT (Red Hat--$9.61; -0.17; optionable): Internet services
http://biz.yahoo.com/p/r/rhat.html
STATUS: Testing the breakout. RHAT is getting right again, testing the huge breakout from its 3 month base. It sold to end the week as did most stocks, but it did so on lower volume unlike many stocks. Friday it showed a tight doji just over the 10 day MVA (9.47), a good place for the breakout to hold and RHAT to start the next leg. Solid money flow and a relative strength breakout. Looking for the move up on rising volume to enter.
Volume: 2.874M Avg Volume: 2.37M
BUY POINT: $9.82 Volume=2.8M Target=$12 Stop=$9.24
POSITION: RCV LU - Dec. $7.50c (73 delta) &/or Stock
http://www.investmenthouse.com/ct/rhat.html
Play Date: 09/05/2003
SCON (Superconductor Tech--$4.12; -0.19; no options): Developing and manufacturing superconducting products
http://biz.yahoo.com/p/s/scon.html
STATUS: Testing the breakout. As with many stocks, SCON shot higher and is now testing that move, falling back to the 18 day MVA on the Friday low (4.01) Volume backed off as the stock moved down on this test, just want you want ot see as that indicates fewer sellers on the fall than buyers on the move higher. The Friday test was also right on top of the early September high, and highs make good support levels. Huge money flow, a relative strength breakout, and excellent money flow. Looking for it to rally from this test on rising volume.
Volume: 933.844K Avg Volume: 805.792K
BUY POINT: New: $4.55 (orig. $3.45) Volume=735K Target=New positions: $5.55 (orig. positions $4.25) Stop=$3.97
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ct/scon.html
Play Date: 09/20/2003
SNUS (Sonus Pharmaceutical--$5.24; +0.02; no options): Diagnostic substances
http://biz.yahoo.com/p/s/snus.html
STATUS: Testing the breakout. SNUS blasted higher Wednesday, but in the late week selling it came all the way back to the 18 day MVA (5.02) on the Friday low and rebounded on a solid volume surge. Excellent, surging money flow and a relative strength breakout. Looking for SNUS to hold here and then make the next break higher.
Volume: 207.4K Avg Volume: 81.906K
BUY POINT: $5.62 Volume=90K Target=$6.75 Stop=$5.16
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ct/snus.html
Play Date: 09/16/2003
TPTH (Tripath Imaging--$8.32; -0.07; no options): Scientific & technical instruments
http://biz.yahoo.com/p/t/tpth.html
STATUS: Breakout test. Yet another stock coming back in the late week selling to test the breakout. TPTH enjoyed a good surge last week but peaked Wednesday and then started down with the market. Volume was lower Thursday on the major selling, but then rallied well Friday as TPTH tested the 18 day MVA (7.89) on the low and rallied sharply to close over the 10 day MVA (8.23). A nice doji that tested support and rebounded well. Looks ready to make the rebound after what looks to be a successful breakout test.
Volume: 348.808K Avg Volume: 185.828K
BUY POINT: $8.37 Volume=261K Target=$10.18 Stop=$7.72
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ct/tpth.html
Downside: Puts have been tanking well and we are letting them run ot the targets: NUE; UTSI
Play Date: 09/24/2003
ATMI (ATMI, Inc.--$24.92; +0.18; optionable): Chip equipment
http://biz.yahoo.com/p/a/atmi.html
STATUS: Put. ATMI dove below the 50 day MVA (26.70) Wednesday and Thursday, but then held its ground and started to rally back Friday on some rising strong volume. Stocks cannot rise or fall indefinitely, but make moves then test the move. We are expecting a relief bounce in chips early this week, and we look for ATMI to test near 26 on the bounce. When it fails there we will look at new positions when it turns back over.
Volume: 506.474K Avg Volume: 335.592K
BUY POINT: New: Test 26, then $25.65 on the way back down (orig. $25.35). Volume=488K Target=$23 Stop=$26.88
POSITION: ASQ WE - Nov. $25p (-42 delta)
http://www.investmenthouse.com/ct/atmi.html
Play Date: 09/25/2003
CMVT (Comverse Technology--$14.64; -0.46; optionable): Telecom processing systems
http://biz.yahoo.com/p/c/cmvt.html
STATUS: Put. Thursday CMVT tested the 50 day MVA (15.64) but backed off. Friday it was selling again though on lower, average volume. It looks primed to fail here and we are ready to move in as it breaks lower. Another test toward 15.50 would be excellent.
Volume: 2.783M Avg Volume: 2.846M
BUY POINT: New: $14.54 (orig. $15.15) Volume=3M Target=$13.05 Stop=$15.85
POSITION: CQV WW - Nov. $17.50p (-83 delta)
http://www.investmenthouse.com/ct/cmvt.html
Play Date: 09/24/2003
GENZ (Genzyme--$46; -0.75; optionable): Biotechnology
http://biz.yahoo.com/p/g/genz.html
STATUS: Put. GENZ broke the 50 day MVA (47.39) Thursday, sold osme more Friday, showing a doji on low volume at that level. We are anticipating a test of the 50 day early this week as the market makes a relief bounce, and we will watch for GENZ to fail somewhere around 48. We want to see volume pick up as it turnes over at the 50 day. We will probably wait and see if it shows a doji or rolls over and is going to close lower after a 50 day test, moving in at the close when tha thappens.
Volume: 2.282M Avg Volume: 3.033M
BUY POINT: Test 47, then $46.75 on the way back down. Volume=3.5M Target=$43 Stop=$48
POSITION: GZQ WS - Nov. $47.50p (-49 delta)
http://www.investmenthouse.com/ct/genz.html
End part 2 of 3
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us stock market
trend trading stock
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