Invest and Trade Profitably with Jon Johnson

Education Center

With QLGC as much as $5 over the strike price on the covered call play initiated in the 8/17 report, what is the risk of the call being exercised? An American option can be exercised at any time. But in actual practice, are calls exercised only in the expiration month?

August 30, 2000

You are correct that in our system an option can be exercised at any time before expiration unlike the English system where they are exercised on the day of expiration. Thus anytime an option is in the money, the odds of it being exercised increase. The odds of being called out are greatest closer to […]

Please can you give me an indication of how you scan for stocks? Are you looking for volume change relative to prior days, earnings growth, minimum average volume etc? I would just like to know the base criteria on how stocks make it in to your shortlist before you scan the charts to pick out the best.

August 30, 2000

One thing we always like to do is scan for stocks that are approaching a 52-week or greater high. This helps us look at stocks that are outperforming the market. We like these because they are doing something right or are being favored for one reason or another. Another important point is that in an […]

Should there be stop losses set on covered call plays in order to limit any loss should the stock take a dive? Also, according to my broker, Charles Schwab, I do not receive the ask price when selling a call using a buy/write. They also do not have a mechanism to automatically set a stop loss for the stock on a buy/write. Should I be finding another broker?

August 30, 2000

One of the things about covered calls is that you should, just as with other positions, keep stop losses of some sort (we use mental) in place. You are correct, a stock can still tank in a covered position just as with any other. What happens when the stock falls in value? The option does […]

DOJI is explained as to how you use it, but there is no explanation as to what the letters stand for. I am unfamiliar with this acronym.

August 30, 2000

Doji is a Japanese term as candlestick charting originated in Japan as a method of predicting price movements in the rice market. As such it is not an acronym but a word used to describe where the open and close prices are nearly equal and thus indicate a potential change in momentum.

I noticed [Friday] that a few of the Nasdaq stocks such as BRCD, QLGC, EBAY, etc. all sold off at exactly 10:20 and then started rising at 11:30. What creates this synchronization, it seems like a useful tool for trading? Is this all the big players conspiring to set selloff and purchase times?

August 30, 2000

Intraday moves in the market result from any number of variables, e.g., a test of support or some news item. There were some strange goings on in Florida early that had an impact on the market as well as more hawkish comments about war with Iraq. When an event occurs that impacts investors, you see […]

In your newsletter and Alert Service you provide targets and stops for equity positions. Is there a way of converting them for use with options? I am not always able to hang around my PC for your alerts.

August 30, 2000

Great question. There are two ways to look at options: the current option value and/or the option value versus the underlying security or index value. When we deal with our options we look at them two ways, a kind of blend of the option price and the underlying equity price. First and foremost to us, […]

Do you ever short stocks, as opposed to buying puts?

August 30, 2000

Yes if we see a really good short with no option chain or if we really like the short but the options do not have a good price/delta/anticipated fall mix (i.e., given the price and delta and how far it could fall, the return is not good enough for the risk). One of the reasons […]

Your newsletter states that the Put/Call ratio has been over 1.0 for the past 5 sessions and this is usually an indicator (contrarian) of a possible bottom. Is it possible for the ratio to be so high, not as a sign of a bottom, but as a sign of overall failing confidence in the market in general?

August 30, 2000

You could very well be right at least in part. There is an awful lot of selling ongoing, but there is also hedging always taking place. A lack of confidence that the market will go up can result in selling (either long term positions or selling short) or hedging to cover long term positions. This […]

Where can I find the ranking of bullish advisors versus bearish advisors on a daily basis?

August 30, 2000

This is not available on a daily basis but is produced once each week. The information is compiled by Investors Intelligence and is released on Wednesday. You can find it in publications such as Investor’s Business Daily.

The second “GAP UP” in three sessions that has not been filled. Is it necessary to fill a gap? Is this a test of patience to the upside or has the train left the station?

August 30, 2000

There is an adage in the market that gaps must be filled before further progress can be made. Think about what has recently been happening on the downside (before late last week): stocks would gap below support (50 day MVA, etc.) and sell lower. Then they would rally back up to fill the gap, testing […]

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