Is it really possible to make money in this trading lark?

Hi Goshort,
I actually subscribe to a website (www.poweropt.com), feed in the criteria I want (essentially I'm looking for good, large companies which are in the lower half of their yearly price range) and only ever look to the forthcoming month. I stick to a 5% max profit from selling a call, and the larger the downside protection the better - so if bad news hit's it gives me time to buy back the call and sell the stock.
I liked the naked puts, for this reason - if I sell a covered call and the stock drops, great I've got the option money and the stock's, but at a lower price than I bought them for. I have to be careful here, because if I sell another call at the same strike - I have to sell it for pennies. I'f I come nearer to at the money, the ask price of the call goes up, but so does my risk of being called out at a loss. Re: naked puts. If the stock drops to (hopefully just below) the stock price, I can have the stock put to me, but more likely at a fair price and I still keep the naked put option money. I can then sell a call against the stock, or maybe still sell it at a profit.
True, I think with a good bull market or more effort from myself I could make more with stocks alone, but 5% growth on average per month equates to 89% compound per year (if only it were that easy) and, most importantly, I'm very comfortable with the risk

Thanks for the modern day 'Confucious Say..." advice. Actually I keep myself in check from taking large risks by holding back to a maximum of 5% growth per month. There are plenty of opportunities out there which offer a bigger bite, like you say, but to enable me to have a good night's sleep (and away from the Gin), I hold off

Hello teleph1

Thanks for your reply. I took a look at the site you mentioned.

You seem to have a game plan which is better than many people. Maybe if you keep things very small it will work out, the tendancy is to up your size because things are going great and then the volatility starts coming in and so do the losses.

When you think about a covered call in fact this is the same thing as a naked put. The value of the stock can therorectically go to zero - of course you will keep the premium on the call which was sold, but otherwise if you are happy with risk factor then by selling a naked put instead of doing the covered call you'll pay only 1 lot of commissions instead of 2.

Best regards

Goshort

Hi Goshort,

well, it's working for me up to now, and that's the main thing I suppose. I use Interactive Brokers, and the commissions are very small, just a couple of dollars to do the whole covered call trade.

I use the site to get the shares which fit my criteria, then do a little research, just to make sure they are good/sound companies and have no announcements that month. I don't really look at the size of the trade, just the share price once I've 'pulled the trigger', keeping a note of my break even should things go bad. My £25k 'pot' is split into 5 different companies (and if I can manage it, 5 sectors), so even if something catastrophic were to happen to a share, it doesn't kill me off.

I've tried to keep things as simple as possible, because I really don't want to be pouring over charts and drawing lines everywhere - from my experience a share price can be disected a hundred ways, then the company or an analyst makes a statement and you can throw all your technical analysis out of the window.

I've been doing things this way for a year now, never been less than 2.5% per month, and mostly at 5% growth per month. The downside is that I can't take advantage of large upswings in a share price, but I'm happy with that, because it means I'll get the 5% I'm aiming for.

Hello teleph1

As this seems to be your area, one other idea you could try is instead of buyiing the shares outright, buy a 2 year LEAP, this is less expensive than buying the shares outright and you can sell the LEAP back after a year and still get most of your premium back and of course get your premium income from the covered call. You will make more than the 2.5 - 5 % using this method. Again all the above assuming you are happy with the downside.

Good continued trading.

Goshort

Your numbers are wrong . At 5% per month gain on a capital of 2000 , is only 100 a month , even if you compounded your gains to capital , it would still be under 7000 assuming you started in Jan 03 to now .

nowhere near 25k , and that's assuming you have no losses or go under 5% per month , which you admitted has happened.

Also the chap who said options were like the market hooking fishes when they least suspect is dead on . Options game is not as easy as some make it sound , sooner or later you get a big loss and that big one is usually much heavier than vanilla products due to the leverage factor.

No, I said my initial capital was £2000, but I have now increased that by adding a lump sum to make it £25k. It's 5% of that total sum I was referring to.

There are lots of comments on these boards which refer to what is risky and what is not, but everyone (I presume) has different levels of 'risk threshold'. What one person considers risky is not necessarily what another would.

I read the 'hooking fishes' comment, but I don't have all my eggs in one basket, have clear break even points where I would 'bail out' if the market turned against me and am comfortable with the possibilities.

As you're in agreement with the 'fishing' comment I presume you have experience in trading options and got 'burned'? What were you trading (and when), what went wrong and what would you do differently? If you have a clear answer to what you would do differently, I'd be keen to know why you didn't change your trading with your new knowledge.

Regards,

Hi Kazza, I been looking at your messages. I am new to this game as well, I have bought and sold shares long term in the past, and have made money from it, I have never really lost, I suppose because it was long term and you can wait for the right time to sell.

But to do this for a living I would have to put alot more work into to make good money, I am sure you can make money from it. The question you must ask yourself -is what happens to the money that put in your bank? You dont see what the banks are doing with your money do you? Well let me tell you. The banks take you money and the play the markets with it, thats how the banks make massive profits. So you really loan the bank money when you bank with them and they take it and invest it in fx and on the stock markets.

If they were loosing all the time well.... think about it.

Regards

Richard