Tuesday, April 18, 2006

Leveraging the Bull, Part II

I posted Leveraging the Bull (Part I) last December as an introduction of sorts as to what this Blog was all about, though I didn't know it at the time. As AllAllan has evolved, it has taken on a life of its own, from daytrading to highly speculative penny stocks and most recently, to market timing.

My first market timing trade was yesterday near the open, buying the June 38 QQQQ calls at $4.50 ($450.00) each. Yesterday's market decline took those calls to below $4.00 before a small come-back near the close. My average cost, after adding more at $4.00, is now $4.25. Those calls just traded at $4.70, for a gain of $0.45 each, a return of 10.5%. The underlying index is at $42.24, about $0.55 above my average entry, or about 1.3% higher.

In other words, a 1.3% gain in the underlying index has translated into a 10.5% gain in the deep-in-the-money options.

I like index options for market timing rather then futures, because options have limited risk, i.e. you cannot lose more then the cost of the position. Futures carry virtually unlimited risk, i.e. "Limit Down" day, after day, after day.

My calls are now trading at $4.90 X $5.00, a 17.6% winner.

Spot quiz, tomorrow.

A

13 comments:

Ronny said...

Hi Allan,your prior post on leverage really hit me.I went back and tested I Buys that were under 5$ and the results were amazing.I have decided to concentrate on stocks priced under 5$ and really let my profits run.
Thanks,Ron

Anonymous said...

I've used index options for some time now and I aggree with totally. It's all about risk/reward. I can tell that you are much more analytical than I am and also much more risk averse than I. Hence you probably do better than I do. Basically I will go into the money, often I will trust my gut and either be at the money or just one strike out from the money. When it goes your way the leverage is terrific but you are correct, if it doesn't, you can loose it all fairly quickly.

I've been trading the S&P emini contract for about 3 months now and find it very enjoyable and profitable. Of course to mitigate that downside you refer to I use "catastrophic" stops and only day trade. Generally I will look to do 3 to 5 points on anywhere from 3 to 10 contracts usually in the morning. The IMO is to make some $$ and then quit for the day.

Anyway I enjoy your blog.

Bob

hans_meier said...

Hi Allan

Thanks for sharing your great experience and insight publicly. What's your opinion on NNVC, is it worth to hold it or is this just a typical "pump and dump"? It retracted rapidly 50% off from its alltime high and just broke through the 50DMA, which is not a good sign :((

Allan said...

hans, my opinion on NNVC is unchanged, longer term a great investment, shorter term, mashed potatoes, soft and pliable, taking the shape of the news du jour...now they need money for a manufactruing facility, a good news - bad news uncertainty for us shareholders, dilution, PIPE financing, who knows?

A

k said...

allan,
i agree NNVC is a long term investment. one thing i don't understand is if they do make it to otcbb, will the current shares have any value?
of your two 'explosive opportunities' 1st it was PTSC that took a hit, now it appears its NNVC turn...funny how this market works. Just like PTSC is bouncing back...NNVC time will come. We will be very greatful in 1-2years.

Anonymous said...

After a spike high earlier this week AOOR now looks terrible. What is going on?

Allan said...

Losers suck! But its a law of the jungle, we have to go through our share of losers to get to our share of winners. Part of the game.

A

hans_meier said...

Hi Allan,

What's your take on Wolanchuk's "beginning of the Wolanchuk-Dent Bull Market of Epic Proportions" mention of WAVR, which is now WVWC? Are you still in this one, which you have mentioned in Jan 06?
Always appreciate your insight.
TIA
Hans

curt504 said...

Yet more fuel for interesting times. My google automatic news search emailed me a report that the recent Hindenburg Omen of 4/7 has been confirmed. Not that this is the only signal saying watch your stocks with a hawk eye. ;-(

Google Hindenburg Omen for yourself and do it _daily_!

Good luck, curt

Anonymous said...

Stupid question, but can you buy options in an IRA account? and if so can you buy them online on most of the sites?

curt504 said...

Anonymous, you have to ask for your ira account to be enabled for options trading. Then only buying calls/puts, no writting of options. This process requires showing high net worth etc etc.

Check your broker's website for supporting trading options. Most do.

I'd be interested in what put on what exchange or ETF you'd be pondering as a sky is falling lets make some $$ anyway strategy?

curt

Anonymous said...

I dumped my AOOR at 0.65 and now see that it is about 0.96. You just never know with these stocks.

Anonymous said...

dsco got crushed after they announced that they have to submit more surfaxin samples to FDA. very cheap buy. Allan, fine pick for the apollo basket, apll and aoor up 30%.-nate