Buy Stocks - Trade Options
I am a long term investor. When I buy a stock it is because it is on sale and represents a great value. Which, by the way, is the same approach I take to real estate investing.
But, even though I am a buy and hold stock investor, I am an options trader.
Well, sort of. Let me explain.
I write covered calls on the stocks I own and I have no compunction about moving into or out of an options position when the conditions warrant it.
For example, I currently have a long stock position in Washington Mutual (THIS IS NOT A RECOMMENDATION!). This morning the stock price took a jump up and the call bid/ask made it attractive to sell a covered call position against my stock position. Since stocks run in cycles I get email alerts a few times a month to take this type of action with the stocks I hold.
You can think of a covered call as renting your stock. You are giving someone an option to buy your stock at an agreed upon price (the strike) within some period of time. Over 80% of all covered calls expire worthless, which makes it attractive to sell them since when they expire, you get to keep the premium you were paid for the option.
Anyway, after I sold the calls, the stock went back down. The market is psychotic that way and my call position I sold is now worth less than I sold it for! That equates to an immediate profit potential. If the stock goes low enough to drive the bid/ask on the calls low enough, I will buy my calls back and keep the spread between the premium I received and the premium I would pay.
Readers of the Tactics and Tools Newsletter will get the opportunity to sign-up for an eCourse in the coming weeks to learn about how covered calls and leaps can be used to enhance an investment portfolio.
You are nuts to hold any long positions. When I buy a stock I hold it only long enough to reach my profit prediction. That is usually just a few hours. I am short on many positions but I would not carry a long position over night in this economy. The risk is too high.
If I were a day trader, I might feel differently about it. I’m not. I’m a buy and hold stock investor. I buy stocks when nobody wants them and hold them for a long time. Then I continually sell covered calls on those positions to the speculators and day trader types.
So far, it is working out fine for me and I don’t have to sit with my face glued to a computer monitor watching the rise and fall of stocks based on nothing more than emotions of speculators and day traders.