When I initially began trading back in the '90's, I was extremely fortunate. I had begun trading during a period when the market was headed almost straight up. My primary technique was writing covered calls which blended with a rising market in such a way that I almost never lost.
The perspective of time allowed me to learn that no market, good or bad will last forever. The only constant is change. Under such factors, I learned to 'roll with the flow', adjusting my techniques to suit market conditions.
Medium Term Trades
As I explained earlier, my favorite medium term technique has long been the covered call. This strategy enabled me to handle my fiscal affairs. By setting up trades designed specifically to 'mature' on a predetermined date 30, sixty or ninety days out into the future, it gave me cash I could count on to help overcome any slow periods of day-to-day cash flow.
As the premium began to dry up, I found writing covered calls more and more complicated. I began to look specifically for those stocks which had been volatile, that could be used to temporarily take the place of covered calls as my medium term technique of choice.
Stock Movement
Let's look for a stock which moves a lot. I have my Chart Navigator system produce this by automatically calculating the average daily range of stock for the past month or so. I will take a look only at the stocks which have at least a dollar and fifty cents or more movement each day.
You have got to have some idea of WHICH way they're most likely to move. We further narrow this search of high volatility stock to merely those stocks which move within a somewhat predictable range, very much like a 'channeling' stock.
Given this information, let's look for a few more characteristics. First, notice that the stock has stayed close to or within this range for several months. Additionally, each 'oscillation takes about a month, moving from the top of the channel towards the bottom.
Bottom line, this stock is moving a lot, but going basically sideways. Next, let's trade this one medium term. If we can do this regularly, then perhaps we can stop being concerned about the availability of covered call trades!
The Trade
Before you trade a stock, it's typically a good idea to know which way it is going. That is the challenge! Trade it BOTH up AND down. Those are the only two ways it is likely to go (remember the high daily movement).
We know we can't buy the stock As well as short the stock (at least not in the exact same account), so why wouldn't you buy a put And a call?! In this case we might consider acquiring the thirty five dollar put and the thirty five dollar call. Usually referred to as a 'long straddle', the position allows us to profit no matter WHICH direction the stock moves.
Now, are you ready to adjust your technique to match market conditions? If you're a bit hesitant or perplexed in any way, employ the assistance of an investment professional. They may be easily located on the web by doing a search for: reverse mergers, company going public, or reverse merger shell. Ultimately, it'll become easier for you to 'go with the flow' too.
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