Comments on: Resistance may not be Futile

By: Paul

Paul — Tue, 20 Oct 2009 18:52:22 +0000

Hello John, I have a question for you. I have about 30.000 saved up in my reer account in canada. I’d love to find a safe way to invest it. Do you recommend covered calls. If you do how long would it take me to learn the strategies and what do you recommend I do. Thanks for your time. Paul Theriault

By: Leland Reicher

Leland Reicher — Wed, 21 Oct 2009 05:21:55 +0000

Very helpful. Thanks. Keep blogging about these support and resistence points. They’re obvious when pointed out, but not so obvious when trying to find them yourself.

By: John Brasher

John Brasher — Wed, 21 Oct 2009 14:03:19 +0000

Hi Paul,

Covered calls can work well, but a couple of thoughts:

1) Buy my book, absorb it and do some CC writing in a paper-trading account.

2) With live money, be sure to put on CC writes WITH he market. When the market pulls back to support, jump on. Also consider the SuperPut variation, which defines and limits your risk.

By: John Brasher

John Brasher — Wed, 21 Oct 2009 14:06:00 +0000

Leland,

Thanks for your comments. This all is no natural to me that I don’t think much about it. It just happened to hit me yesterday and I blogged it. I will keep it up. You know, sometimes the market is in an indecisive phase and trade-entry timing can be very tough. But in this uptrend scenario, not too difficult.

John

By: Michael Brunner

Michael Brunner — Wed, 21 Oct 2009 16:12:55 +0000

Dear John,
Thanks for your cautious comments on recent market conditions.
I am in the market but exclusively with super put trades. Thinking a super put trade is of some 6 months duration and the put protects the capital. Am I right or wrong?

By: John Brasher

John Brasher — Wed, 21 Oct 2009 17:18:53 +0000

Michael,
There is no reason to treat the SP much differently, since it is a CC with protective put added. Holding the stock through a pullback makes no more sense in a SP than a regular CC, because why hold a declining asset? If you close the CC end of the trade, you can still get back into the stock on the rebound. You would in this case either SELL the put after its gain in value, or ROLL the put down to a lower strike (since you would be getting into the stock lower and would be good with a lower-strike put) and put a little jingle in your pocket.

If you hold onto the stock through a decline, at least close the call if it doesn’t expire before stock support is reached, so you can sell it again.
JB

By: Jeff Partlow

Jeff Partlow — Sat, 24 Oct 2009 13:55:04 +0000

John,
My conclusion from the preponderance of the research on trying to make short-term market timing decisions is that it is counter-productive to our returns results. Frequently sitting on the money-market sidelines is an undesirable alternative for us covered calls investors. If we are feeling bearish about the current market, selling deep-in-the-money covered calls (or your collar strategy) will provide us a much better return than a money-market fund.
Jeff

By: John Brasher

John Brasher — Sat, 24 Oct 2009 15:21:12 +0000

Hi Jeff,

There are many ways to approach it, of course. But c’mon, everyone times. Even a guy who doesn’t know what a stock chart is, times. The timing may be careful, or oblivious, or anything in between. But in choosing to put on a trade in the now, we are implicitly stating that current market conditions are - at the least - acceptable to us (and vice-versa). For example, were you writing calls during the OCT/NOV 2008 slaughter? Probably not. And if not, you were timing.

I’m not always right on trade entry points, but I have found that trading with the market creates much higher-probability trades. This is nowhere truer than in a strongly uptrending market. Once I have made 3% plus on a trade, I feel no need or urge to put it back into a new trade immediately. This approach has worked like a charm.
JB