Options TDA with Derek June 27

June 27, 2008

Thank you for your time and attention. Thanks to TDAmeritrade I had this chance to present a conservative strategy for portfolio management. Collecting premiums can add to income. It is part of a trend trading strategy.

When it comes to options, I hope I made it very clear that you have to learn trend and then study the options premium chains. There are no short cuts. It is once again, mostly money management, which is what TraderDoc Methodology is predicated upon.

Divergence is a whole subject that goes to strategy. Chapter 6 of ADXcellence covers divergence and there is a very extensive article available from TradersJournal.com, ‘The Verge of Success’ by Candy Schaap.

The information presented is for educational purposes. Dr. Schaap, StockMarketStore.com, or its representatives are not a stock brokers or investment advisors. No particular stocks, options, or futures are recommended. It is recommended that you consult professional investment advice prior to implementing an investment program.

The information is intended to provide basic and advanced instruction in technical analysis. We are entirely independent of TDAmeritrade.

Do not trade with money you cannot afford to lose. Trading involves potential risks. Losses are common and a part of any trading or investing program. It should not be assumed that methods taught will not result in losses.

We have three sites for learning. Lessons are posted each week for you to practice and learn strategies for profit. You can also sign up for the free weekly Journal.

Selling puts and selling CC can be part of a trend trading strategy. When a stock price is trending you can buy the stock. It is also a long position when you sell the put. Selling a covered call at a target or divergence is a way to ‘sell’ for a premium.

Selling puts and selling CC can be part of a trend trading strategy.

Dr. Schaap teaches how to use ADX weakening momentum for strategies that can make a profit. This is covered in Chapter 6 and also this article I wrote at Investopedia.com:

Divergence: The Trade Most Profitable -Comparing price swings helps traders gain insight into price momentum.

When we sell a put to acquire a stock, it can be buying at a discount. The premise is that price is trending up, but it may go lower first. This can be a fairly conservative portfolio strategy.

Example:

We have price above the 50 week moving average and ADX and +DMI is rising above the 25% level, a clue to price direction and trend strength. This is an area to buy the stock or sell a covered call. When price is at that area, we do not know if price will continue up, go back down or go sideways. This is not about predicting, this is about money management and the premium is what you collect.

Selling the put is still an open position that requires trade management, like a stop loss. Know what price you no longer would want to be a holder of this stock.

Next is WLT

Someone from one of my classes bought this stock at $45 and sold a CC at $70 for $5 Her profit was $30 per share.

She wrote and complained that price kept going up. Let's look at this - first of all, I don’t know what she was upset about, she had a profit. Secondly, even though she sold the CC - could she not have also got back in? There is always opportunity, but each trader must learn to make the journey.

As part of trend dynamics, Dr. Schaap teaches that trends do not reverse quickly or often.

Get a few options candidates and then train yourself to follow the options premium. The action of the underlying is what matters, trending or not trending. Then you have to learn the correct strategy. It is about making money, not being right, because you can be right and not profitable.

Profits are a choice and I hope this helps you make better choices. My husband’s new book Invest with Success teaches investment principles. You may have noticed I use ADX/ DMI for the options strategies because ADX is the only trend indicator. The book ADXcellence: Power Trend Strategies, while it does not specifically cover options, does teach trend dynamics and trend principles, which go to the strategy used whether it is options or straight buying and selling.

For the industrious among you – here is a cross word puzzle that will test your knowledge of option vocabulary.

ANSWER KEY: