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the market is so difficult to beat. the solution is that we do not try to beat market at all. From my experience, the stop-loss strategy seems to do more harm than good. First of all, in many, probably most cases, stock reverses shortly after your stop loss is eaten away.those so-called resistance, support stuff are so fragile. you can not rely your hear-earned money on those crappy, shaky stuff. Secondly, stop loss does nothing to protect you from disasterour gap down (look at MTXX, BEAT).
I am thinking about protective put strategy. typically, 6 months of in-the-money put costs about 10% of purchase price (depending on volitilities etc.). However 10% premius for 6 months is too much. The strategy is that we can apply good TA skill so that there is a very good chance the stock may go up a few percent such that 6 months of in-the-money protective put costs 5% of purchase price. In other words, you buy the stock at price of X, when stock goes up to a point where max loss over 6 months (in-the-money (relative to purchase price) strike price - (purchase price + premium paid)) is 5% of initial purchase price, then lock the sell price with PUT option. In this way, you do not need to worry about what the stock can go terrible in 6 months and you won't miss any possible rally for 6 months. the max you can lose is 5% of money you paid which is very acceptable.
for example, if I buy IBKR at 15 now, its dec. 15 put is 1.4 which is about 9% of stock price. when IBKR goes up a point such that you can purchase 15 put at 0.7-0.8 range. then you can 高枕無憂 until december 19, 2009. you won't worry about ER, recession, terror strike, korean nuclear strike, earthquake, bankrupcy of citi bank, or any horrible news for a while.
I am thinking about protective put strategy. typically, 6 months of in-the-money put costs about 10% of purchase price (depending on volitilities etc.). However 10% premius for 6 months is too much. The strategy is that we can apply good TA skill so that there is a very good chance the stock may go up a few percent such that 6 months of in-the-money protective put costs 5% of purchase price. In other words, you buy the stock at price of X, when stock goes up to a point where max loss over 6 months (in-the-money (relative to purchase price) strike price - (purchase price + premium paid)) is 5% of initial purchase price, then lock the sell price with PUT option. In this way, you do not need to worry about what the stock can go terrible in 6 months and you won't miss any possible rally for 6 months. the max you can lose is 5% of money you paid which is very acceptable.
for example, if I buy IBKR at 15 now, its dec. 15 put is 1.4 which is about 9% of stock price. when IBKR goes up a point such that you can purchase 15 put at 0.7-0.8 range. then you can 高枕無憂 until december 19, 2009. you won't worry about ER, recession, terror strike, korean nuclear strike, earthquake, bankrupcy of citi bank, or any horrible news for a while.
1. why 6 months?
2. how much min. money need to put into buying stock?
5 contracts is the min. option I would be thinking of buying because of the commission fee.
so I guess $2500? 2500*5%=125, 125/500=$.25. This 25 cents indeed can buy alot of puts like C.
Please let me know your answers to my Qs.