PERSPECTIVES of a NICE OLD MAN: Stock Investing Without the Risks of Owning Stock [Part 3]

PERSPECTIVES of a NICE OLD MAN:
Stock Investing Without the Risks of Owning Stock [Part 3]

With this sharing of personal experience, it is absolutely not my intent to come on as a professional investor or trader. Hardly a week passes with out my receiving mail from would be professionals who offers to sell investing schemes, and there are other "helpers" whose papers abound with information that assures [with standard underlying disclaimer and risk warning] winning trades. For me, there is special strength in learning by doing because every remembered mistake along the way to "profit land" can be a valued lesson.

Options trading holds many of the same elements as my martial arts training, and one of those elements is never ever being satisfied with existing performance level. I believe that no matter how good a person gets with a skill, there is always another level to achieve, and it is my nature to reach for the next level. The traditional and probably the best place to start trading is simple calls and puts because they are basic to profitable execution of the many advanced strategies like my most recent favorite - Covered Calls - which I call "Covered Cows" because at least some of them produce almost every day.

The difficulty with learning how to read, analyze and respond to technical resources like graphs and charts has, for me, been on a par with undergraduate college course work. Locating stocks that will produce profitable option trades was by far my most serious challenge; and, for that, my learning by doing approach took me to many places - like various financial news papers, investment web sites, financial market stock tickers, etc. There is certainly a place for those sources which are widely and successfully used; and, use them or not, it is important to be aware of all existing resources.

The source that works for me is trading volume - purely and simply, advancing stocks that rack up the heaviest daily trade volume. The information is available without charge from a variety of sources. My favorite is the BarChart web site [this is not a paid pitch] which provides a super abundance of information before, during and after the trading day.

My present target stocks are, with few exceptions, those that have gained 2% or more on the day and closed at $5.00 or less. This initial screening process usually takes 20 days and identifies around a dozen stocks that have made frequent daily appearances. My final selection involves a sequence of various factors that usually provides about 6 stocks for my active trading list. Trading with a group of up to 15 stocks increases assurance that some will move almost every day; and trading with lower priced stocks allows me to diversify and thereby spread risk over several option trades.

My day to day scenario is watching the stocks in my portfolio for opportunities to enter potential winning trades and exit trades that have moved into the profit zone. The big end of my trading happens during the first and the last market hour, but I may still enter and exit option trades on the same stock more than once during a single trading day. Alas, my November was a lousy trading month yielding only $17,000 - less than half of October.