Thanks for explaining your comments. I may have been a bit too touchy in saying you were attacking. What I do took a long time to learn and acquire experience with and is difficult to explain especially without being able to post charts. I''ve read many books on trading, but most of the good stuff came directly from the mouths of professional traders / pit traders.
Contrary to what you think, I do consider fundamentals or at least changes in them. The 3-legged stool of trading consists of technical analysis, market sentiment, and fundamentals. But by and large the least important are the fundamentals. For most Yahoos that is a foreign concept since fundamental analysis is all they know. For example, over the years I've watched so many people get into stocks right at the top or others who have a nice profit and then refuse to sell and end up taking large losses. Interestingly, it is always at the top when the fundamentals are the very best and the market sentiment is soaring. What they fail to recognize is that there are large operators exiting on strong buying days and quietly exiting in distribution ranges because they lack the technical acumen to detect it.
What I think you and I and Picker and Turtle have in common is that we mostly TRADE, we don't invest, that is, we have a plan or a set of rules that puts us into a position and takes us out.
Unlike you and Picker, I just trade the underlying; swing trade mostly, but I also have position trades on, and I have been known to day trade. I have a fair understanding of options strategies and a great platform for analyzing them, but not much experience with them, by choice really. In my system I'm either in or I'm out since my strength comes from the ability to time entries and exits. But that said, I appreciate your comments and wish you would better explain / summarize your system and then post from time to time what you are considering technically or how you are managing your trade. Thanks.
OK, no problems. I have enjoyed some of the banter back and forth. It beats the idiotic posts back and forth. Yes, I would consider myself as a trader but also not afraid to hold a good stock at a good price. As I said in a previous post, I take out the hard decision (for me at least) of what price to enter or exit at by using options. I look at which stocks I find undervalued, see which ones give me the best premiums for the downside risk, and "diversify" by not allocating more than 20% of my account for this strategy on any one stock. I typically find at least 7-8 to trade at any one time so I am not 20% allocated too frequently on any stock, and typically I try to at least get in 2 different industries if not more in case one is hit hard all at the same time. I would probably be considered an income investor since I make my money off of the premiums, meaning I will sell a put at a certain strike price then if put on the stock I will look to sell the call at the same strike price. In the meantime, while holding the stock, I will look to collect the dividends as well. So the stocks I choose typically have a strong history of dividend increases, i.e. dividend champions. I don't make money on the stock appreciation usually, but mostly on the option premiums and dividends.
As for how I value a company, I look at fundamentals and also do a sort of dividend analysis. Using fundamentals, I compare the company versus its competitors in several key areas and if they all flash the stock is undervalued compared to its competitors then I do some research and ensure the valuation is only a function of bad news and not a game-changer like a sinking business model in the near term. In fact, I love when there are downgrades on the stocks I look at, that is when I typically swoop in. For example, the last downgrade on TGT sent the stock to about 57.60. I sold puts at 57.50 on it and got a great premium. It bounced as expected and even went to 61 I think. I sold additional 60 puts and made another nice premium all in the same month. I love downgrades and bad news, it creates opportunities for put selling at much lower strike prices. When you posted several times that I must watch Cramer and all the other lackies and follow their advice, well that is dead wrong and actually a bit insulting. That's OK, I can take it, I am a big boy and really don't care. It is funny, I tune in to Cramer every week or two just to see what he's got to say. Around late Novemberish I saw 2-3 programs of his and each time he really hated SWY and was really high on KR and WFM. SWY was above 16 somewhere at that point and I had DEC 16 puts sold on it. The stock proceeded to hit in the high 19's on Dec. 6 and I bought those puts back. I cleared a 2.1% return in just a week or so on SWY and then sold DEC 17.5 puts on it again a week or so later in mid-December for another 1.1%. I sold Jan 17.5 puts in late December for a 2.24% premium. I was selling OCT puts on it for a 3.24% premium and the NOV puts for a 2.14% premium. I have loved that stock's options. I won't go above 18, however, so it has been sitting above 19 all month. I could have snagged a 1.5% premium on a FEB 18 put right after January expiration but didn't pull the trigger because I had other stocks that were better plus I only wanted to allocate no more than 40% of my cash with the debt crisis on the horizon at that time. But the moral here is, I have no use for stupid, white noise news except that it creates opportunities for me.
My dividend analysis consists of trying to find a stock price "floor" because the dividend yield gets high enough that buying will come in and minimize the downside in a bear market. I want to really find stocks that are undervalued fundamentally and within about 10% of what I consider the dividend "floor". This minimizes my downside risk. Another downside risk strategy I have is to sell calls at a lower strike price if the stock falls a bit. This may take some potential profit away, but greatly reduces my cost basis. I may also elect to just sell the stock if that appears to be the best strategy. I will buy back puts that have taken off if I am fully allocated and have better opportunities to put the money, OR if I think the stock will fall again and I can sell that same strike put for an additional profit.
You recently mentioned F as being a stock you bought. It was funny because I had just sold some weekly F puts as well. The weeklys on F have terrific premiums. The stock doesn't necessarily fit well in my system since it doesn't have a dividend history, but I take a few risks here and there, such as with SKUL, when the risk/reward looks great (obviously I missed the mark with SKUL). A stock I have loved for a long time has been PII. Great options premiums on a great company that is growing like gangbusters. Again, not necessarily fitting my system perfectly, but just a fundamentally awesome company. I have been selling options on it since October at the 80 and 82.5 level and I won't go above 82.5 so I haven't gotten a trade in on it this month at all for the first time since October. The price has been mostly in the high 80's or low 90's so premiums have been too low at 82.5. It has come back down to 85-86, but the premiums are still not good enough for FEB and 2013 may not be as good for PII, so I have to re-evaluate that stock and my desired strike price.
I hope that at least gives some explanation into my strategy. Oh, and one final comment. I have mentioned it before, but I also have contingency plans on each trade. What do I do if the stock drops, stays even, or increases? This is a must since the risk/reward changes in each scenario.
And a final comment, I don't mind holding cash for a market downturn. Right now I am only about 50-60% allocated, holding the rest for a potential market downturn. A good amount of my other options are weekly, so I am flexible right now with how much cash I hold. For instance if a big upswing happens in a week and my options expire worthless, that freed up cash can then be held for a potential downturn the next week and get some nice weekly options on Tuesday or Wednesday expiring in a couple days. I have been no more than 60% allocated since late December worried about, first the fiscal cliff, then the debt crisis, and now the over-valuation of the market and the downturn I am expecting soon. I can get some juicy premiums with good downside protection, only allocate 50% of my money, and still get a return of over 1% in a month with options trades. Double digit annualized returns, that's what I target and 1% each month gets me there. And I feel I am not taking a huge risk currently since a good percentage of my money is in cash in an over-valued market. I have toyed with the potential idea of selling calls on over-valued stocks and buying the stock if it nears the strike price to cover the call in that scenario. This would be a hedge on a market downturn. Never done that before though, and I have never shorted stocks because I have never looked for over-valued stocks. What is your thought on selling calls as a hedge for a downturn?