Free Fall Day of May 6th, 2010

What a day! If you are just studying and on the side lines waiting to get into the market when you learn more. Good for you, because everyone lost money today. Today will be a great day to look back on when you buy a stock and wonder if you should buy a put to protect your investment. In today's market you never know when we will get a pull back, correction or a free fall like today. Today was the biggest intra-day drop ever, close to 1000 points. And it happened in 15 or 20 minutes. Then it was the biggest intra-day rebound ever of 650 points in 20 to 25 minutes. As you know we ended the day down 347 points. Very scary! If you are only in stocks you have to hope and wait for the market to rebound. If you are in stocks and options you might have a bigger problem or an opportunity to bring in more premiums. There is still two weeks to expiration so there still might be a chance to get a decent premium if we get a full bounce back in the next few days. Here is what I am going to look to do. If in the morning we get a continued pull back I am going to look to buy back some of my options I sold, if the stock is much lower then when I sold the option. Then on a bounce back, if that happens, resell the options for another premium or maybe roll it out to June for a bigger premium. If the stocks stay low I just have to wait for them to come back and keep the whole premium from my original option sale by waiting for expiration......Wall street is tough but Main Street will win. Please remember to buy some puts (insurance) on your investments. Look back at my Kodak deal. And good luck on this rollercoaster because I don't think the ride is over yet.

The Coach

P.S. Thank you for the e-mails today because misery loves company.

When Warren Buffett talks, people listen

Warren Buffett, does he have some pull or what? He was on CNBC this morning and he moved the markets. He said some positive things about the economy and some positive things about Goldman Sachs and we were off and running all day. He said the economy was strengthening faster then he originally thought. He also said he felt Goldman did nothing wrong and Lloyd Blankfein (Goldman's CEO) was doing a great job. The Dow ended up 143 points and it is a good start to the week, maybe it can continue. We will see tomorrow! A few of my stocks have been hurting with a few down days last week. Even with an up day some of my stocks went down. Not to worry. This is why it is important to be in quality companies. Today SNDK up $3.48, U.S. Steel started off down $2 but ended up a little. I really like the way U.S. Steel looks on the candlestick chart. It looks like it hammered out a bottom. Lets watch it for the rest of the week, I own 2000 shares. Also AK Steel showed some improvement today. Lets watch this one also. In my last post I spoke about selling a naked call on PUDA. I ended up buying it on Friday with my "buy stop order". If the stock went down I would have continued in the naked position but the stock went up and my buy order went into effect. I got in at 9.95 and today it hit 10.30. If PUDA stays above $10 until expiration I have the stock to deliver.....Come on Warren, give us some more positive comments in the morning.

The Coach

A Trade with a "BUY STOP ORDER"

The market has about 45 minutes to go and I just made a trade. I sold a call on a company called Puda Coal (ticker PUDA). This is NOT a covered call, it is a naked call. VERY DANGEROUS! When you do a covered call you own a stock and you sell a call option against it. If at expiration date you have to deliver the stock, you own it to deliver it. With a naked call, if you have to deliver the stock you first have to buy it and the price might be much higher than the strike price. If the stock is at 10 and you sell a naked call with the strike price of 10 and at expiration date the price of the stock is 15, you have to buy the stock at 15 and deliver it at 10. You would lose 5 points. In that same scenario, if you first own the stock at 10 then sell the covered call and the stock goes to 15, you deliver the stock at 10 and you bought it at 10, no loss. This is very important. If you don't understand please e-mail me and I will explain it in more detail........ Back to my trade. I sold a naked call on PUDA. I sold 10 contracts of the May $10 call and received .60. On 10 contracts that is $600. If I bought the stock at $9.77, the current price, that would be 12.2% on margin. That is a great deal for less then a month. The yearly yield would be 146.4%. I sold it naked because the stock went down the last two days and I feel the stock might continue going down. When I sold the call the stock was at 9.77. If the stock does continue to go south and on expiration it is, lets say $7. I do not have to deal with a stock that is $2.77 below where I bought it. I keep my premium, deal over and I move on. I did protect myself in case the stock goes up. I put a "buy stop order" on the stock at $9.95 and I put it GTC (good till cancelled). What this does is stops and buys the stock at $9.95 so the stock will not go any higher without me owning it. So if the stock does goes up I will own it before it gets higher then the strike price. Then I will remove the GTC on expiration date. This is a great tool for protection. If I didn't put the "buy stop order" on I would put a "RISK FACTOR" of 4 on this trade but with the "buy stop order" I put a RISK FACTOR" of 1. Big deference. If this stock does go up and I buy it I will let you know. I will edit this post and add it in and also I will add it to the post of that day........I just made a trade, possibly taught you something and made $600. I think I'll shut down and go out to dinner.

The Coach

It is now Monday May 3rd. The trade I made above has been completed and I am editing my post as I said I would. I sold a naked call on PUDA and put a "buy stop order" on the stock. I did not want the stock going above $10 while I was naked. Now that the stock is above 10 I own it so I can deliver the stock if on expiration day (May 22nd.) the stock gets assigned. Today I will put a "sell stop order" on the stock because if it goes down I don't want to own it below $10.

Not Preparing to WIN is Preparing to LOSE!

"Not preparing to win is preparing to lose" is a line I always used when I was coaching basketball. And I think it fits in great with the options game. As you have seen in the market yesterday, even if you did prepare, sometimes it doesn't help. Yesterday's down market (caused by the Greece fallout and of course the Goldman hearings didn't help) will be the type of market we will see for a while. The financial situation in Greece, I feel, will be contagious to other European countries. We also know we will see major financial reform in the U.S. caused by Goldman Sachs and the rest of the greedy financial institutions. Many feel , as I do, that there is still a lot of money on the side lines waiting to get into this market. Between this money cautiously entering the market and the up and down financial news mixed in with earnings season, I hope you like rollercoasters! Even with all this I am mildly bullish and I feel the Dow and the S&P will keep an up trend. I am not a stock adviser and I don't recommend stocks or options. I let you know what I am thinking and I let you know my trades as I make them. I will advise you on one thing, be prepared. Don't ever think you are good at this game. Once you let your guard down and get a little cocky, BANG! You will get hit hard! Let's talk about preparation. When I was coaching basketball I tried to prepare my team, pre-season, for our first game. I wrote down everything I wanted to have in our arsenal before the first game. With a six week pre-season, I broke that list into six, one week lessons. Then I broke my one week lessons into six daily practice sessions. I would give them one day off (nice guy). Having done this I knew we would be prepared for our first game. After the first game we would slowly add more material to get better and better each game getting ready for the playoffs at the end of the season. We were always preparing to win because "Not Preparing to Win is Preparing to Lose!" This preparation to beat the other team included, but not limited to, fundamentals, offenses, defenses and plays for quick scores. The type of preparation I am talking about is exactly the type of preparation you need to beat the team I play now, "Wall Street". You must start with fundamentals and go from there. Education material is very easy to get. You can start with "Main Street beats Wall Street". I will be posting many articles on beginning strategies and more advanced strategies. I will also be posting articles on my philosophies. You must read books and get the philosophy of the author. There are many, many books from options for beginners to advanced option strategies available in any book store in the financial section. Don't forget to watch the financial shows and always remember that "Not Preparing to win is Preparing to Lose!"

The Coach

Check out this Sandisk Play

I would like to thank everyone for the great e-mails. I'm sorry I didn't get right back to you faster and I'm sorry I didn't write on the blog in a few days. This will happens once in a while because of my schedule. My three business' and my trading, plus a little fun (alright a lot of fun), makes me burn the candle from both ends. This little 6 day break I took was because of a motorcycle trip from Fort Lauderdale to Key West. For you who rode or the ones who know me, you know the fun we had. Returned back to N.Y. last night and it's back to work today. Lets get started......In my last post I gave you all my positions, which are also in the new section labeled "Current Positions". There is a few positions I failed to enter. They involve the company AK Steel (ticker AKS). I own 4000 shs. of AKS which I purchased at different times. When I have this situation of multiple buy dates I will write "Multiple" in the date section of my "Current Positions". I bought 3000 shs. at different times and I was assigned 1000 shs. from an April $22 put. I own the 4000 shs. at the average price of $22.82. I already received premiums on calls I sold on some of the shares for the last two periods. I did not sell the calls for May yet because the stock dropped back on the earnings report that the Street didn't like: in addition the Goldman hearing with congress is knocking the hell out of the market today. Right now AKS is at 17.90. At this level I really like AKS. That's for me, I do not recommend any move with other peoples money.....On 4/15, I also sold a put on AKS. I sold the May $22 put on 10 contracts for $1.25, the stock was at 22.30. If on May 22nd. AKS is below $22 it will be put to me (see assignment in my options dictionary) along with keeping the $1250. If it goes above 22 I keep the premium of $1250 and the deal is over. As I said, it is at $17.90 right now and I am not worried a bit. I've been watching AKS for many years, I have faith. Lets see what happens on May 22nd..............In my last post I mentioned two companies I own but did not sell calls yet. That was U.S. Steel (X) and Sandisk (SNDK). I said X was at $59.20 and SNDK was at $37.33. I didn't want to sell the call yet because I felt they were going to have a little run and I wanted to wait until I could get a higher premium or if the stocks had a good run I could go to a higher strike price to get more capital gains on the stocks. Lets look at X first. That post was written on 4/20. I was looking at the May $60 call. I could have gotten $3.05 on 20 contracts for a premium of $6100. I did not go for this, I wanted to wait for the move I anticipated. On Mon. 4/26 (yesterday) the stock hit $60.95. I really think X can go higher so I decided to sell the May $65 call for $1.90 and take a premium of $1900. Because I feel X can run higher I only sold 10 contracts. I have another 10 to sell if it goes higher. Again I hope I didn't make a mistake because everything in down today and X is down to 57.60, down 2.50 on the day, damn Goldman. I not worried, X is a great company. For this game you need a strong gut. I will let you know what I do with the other 1000 shs...........Let go to SNDK. On 4/20 in the same post I said I was holding back on selling the calls. The stock was at 37.33 and I was thinking about the May $38 call for $1.87, the May $39 for $1.46 or the May $40 for $1.16. Holding back worked out great, SNDK ran up to 44.75. I could not hold back any more because after that run now I was looking for a profit taking pull back. On Mon 4/26 (yesterday) I sold the May $45 call for $1.90 for a premium of $3800. I timed this one perfectly! There is profit taking going on right now and SNDK dropped to 41.90. If this goes down to 40 I might buy more. I really like this stock and many analyst have a price target of 50. I bought SNDK for 35.97. If I get called out on May 22nd. this will be some deal. Lets look at the profit if that happens. My capital gains on the stock will be $18,060 on 2000 shs (paid 35.97 and if called out at 45) plus the premium of $3800. A total of $21,860 (that's a new motorcycle). I know I didn't get called out yet but this is a great mover at this price and I think I will. If I don't, no problem I sell another call. Beginners, stay tuned for a "Class Room" post. I will be writing one soon.

The Coach

The Strange Lingo of Options

One intimidating factor about the options market is its language. The exotic and specialized terminology used by option traders often creates the impression that this market is too high level and advanced for the average investor. The truth is that by mastering a few terms, you can overcome the language barrier. The best way to learn any language is to situate yourself in an environment where that language is spoken. If I want to learn to speak Spanish I will hang around people who are speaking Spanish. Not that learning the lingo of option traders is equal to learning a foreign language but there are terms that will make you say "why do they call it that"? When it comes to options there are two kinds, there are "call options" and "put options". You can sell a "call option" and you can buy a "call option", you can sell a "put option" and you can buy a "put option". And there are many more!... INTIMIDATING?....Yes, but do not succumb to the language of "Wall Street". The name of the blog is "Main Street beats Wall Street" not Main Street succumbs to Wall Street. So, to start learning the lingo, start talking to people who are involved in options. Maybe get into this venture with a friend. Someone to talk and study with. Buy some books to reference. A great way to learn about a term is just Google it. Watch the financial shows. I like Fast Money on CNBC and also Options Action also on CNBC. One thing about Fast Money and Options Action, when they are explaining a trade they talk really fast. This can be intimidating. Why do they do this? I don't know, but don't give in. There is so much money to be made as you will see in my posted trades....Lets get started. I am going to list a handful of important terms and make a link. The name of the link will be "Stock options Dictionary". This link will be located on the right side of this blog's home page just below "About Me". This list will start off small with no definitions, as of this writing (I do not have time to write a dictionary right now). As time goes on I will add terms to the list plus add definitions. If you need to know a term that is not listed or the definition is not there yet, just Google it or you can e-mail me.
Today was the last day of trading for the period, which is expiration day. In the next day or two I will post the results of the few trades I posted that I entered during the last month. You will see the real results of real trades. When you see the money that went into my account you will be looking up the definition of "Capital Gains"

The Coach