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I just posted asking whether anyone was interested in learning from the ground up about options. I know it's too soon to expect replies but I just picked this post up on Mishedlo's board. You may like to read it carefully because there is some indication of where the US market is going however, the main point about the excercise is if you understand it - fine, if it appears a bit mystifying then maybe an options learning course would be a good thing. I also have to add that Mish really knows his stuff about options.
Incidentally the US Options Exchange (CBOE) also have a very good course.
Regards
Harmy

http://boards.fool.com/Message.asp?mid=16737523&recscode=2

Here goes, and perhaps a surprising one.
Rally!
No, not now, but perhaps soon.

We need panic first
A string of 3 days in a row of -1000 tick counts etc.

The criminals have unloaded at the top once the sheep stopped buying.
Expect numerous upgrades now while they are selling.
Just before the bottom, expect to see a bunch of downgrades.
Zeev has a published target of 1720. Perhaps we blow thru that, perhaps we bounce in front of it. At any rate it will close at least one nagging gap on the QQQ's.

I have no idea what will spark a rally.
I am pretty sure it will happen.
I do not know if it is at 1720, 1680, 1749 or 1600
If it does NOT come the bottom will simply fall out and we will blow thru the Sept "bottom" like it was melted butter.

Why the rally call?
It is dammed simple.
There simply are too many puts in the money in March
That is it.
No more
No less.
There is no more to this market, at this point in time, than criminal option acivity IMHO.

FA forget about it
TA forget about it
Watch the options, then watch for a sign of reversal.
It was all the crooks could do to manage a rally resterday to QQQ 37 1/2 max pain. They could not even muster enough gas to keep us there, so they shorted at that price and let it drop. Still they managed to hold CSCO and INTC right at max pain. Simply amazing performance by the crooks IMHO.

A look ahead
QQQ option interest
Strike - Calls first, Puts second
33 7K 19K
34 8K 60K
35 19K 100K
36 23K 94K
37 49K 163K
38 52K 71K
39 52K 71K
40 122K 100K

At every single strike from 33 to 39 the number of puts outweighs the calls by a staggering amount. There simply is no way in hell the crooks are going to let that many puts finish in the money.

The problem is: no one is buying.
The only way to induce buying is to first induce panic
The TRIN today was 4-5 all day.
Never seen such a huge trin before, sustained all day
Mammoth unloading by the institutions all day.
Undoubtedly they went short mammoth amount of stuff.
Once the distribution is fully complete. The bottom will fall off the bid.

Then: to cause a rally we need PANIC selling.
Have not seen it yet.
It is coming.
When it subsides BUY BUY BUY
I am serious.
There is no way in h*ll the crooks are going to let that many puts expire that far in the money.
Barring a nuclear or other disaster, it just ain't gonna happen.
OTOH, we have no rally until we see panic first.
Play the short side, on the watch for -1000 ticks, excessive pessimism, glee from the bears, Zeev's target of 1720 (which fills the gap up at 1750 or there abouts) and other indicators.

We will not want to be short at the reversal. It will not be pretty if we are. We probably do not want to be long much ahead of that reversal.

Let's watch for signs of the bottom so we do not miss it.
In the meantime, what stocks do we want to play on the rebound?

M


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Harmy, just the thought of trading options gives me white, very
white knuckles, like bunjy jumping,
Not my cuppa at the moment, but thanks..



That post of Mishledo's was a bit scary though,
Sounds like the Ide's of march is expected doesnt it!


Cheers.
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That post of Mishledo's was a bit scary though,
Sounds like the Ide's of march is expected doesnt it!


Not really scary.
It's an opportunity for those willing to grasp it.
The market is always going to go up and down.
Mishedlo points out a way (and the why) to read the vagaries of it in the short term. Once you know the rules then you can play the game.

Cassie you've got to get rid of that pessimistic streak. Sounds like you need a plan for your investing instead of hit or miss - hope and pray.
Don't take offence, I'm genuinely trying to help, not score points.
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Barcoo,he said..



I have no idea what will spark a rally."
I am pretty sure it will happen.
I do not know if it is at 1720, 1680, 1749 or 1600
If it does NOT come the bottom will simply fall out and we will blow thru the Sept "bottom" like it was melted butter."

to me that sounded like he expects the US market must have a rally soon, BUT,
If not then they could have a nasty fall,

did I take the wrong meaning there?

and I'm not hit or miss with investing, just slow and careful,
learning as I go along.. I just have to kick this premature selling
thing,

Cheers.
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did I take the wrong meaning there?


No you didn't Cassie, it's just where you place the emphasis.
You see the worst case scenario.
I see the fact that Mishedlo can read what is happening and come up with a plan to utilise this knowledge he has.

My point was that if you had a plan you would have the confidence to ignore this "noise" in the market and wouldn't get spooked.
Your plan may become that you don't need an exit strategy for at least 4 years and by then the shares may be that far "in the money" that you don't need one at all unless better opportunities or serious trouble come along. Sure would cure selling too early.
I suppose you have to take into account the type of stocks being purchased as well.

I've owned ANZ about 2.5 years. Straight after I bought they dropped about 30%. An exit strategy on that short a time frame would have taken me out at a loss. Because I didn't sell I am up about 80% on my ANZs and as long as they keep showing a general uptrend it's all free money from here. Doesn't mean I take my eye off the ball, just means "ride the bumps".

Exactly the same thing happened with ADB except I had a TA exit strategy (support level). The result- out with a small loss and have missed the 70% rise. Not saying this is the wrong thing to do- just putting it in for comparison.

Have you read the Buffett books I've recommended?
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The result- out with a small loss and have missed the 70% rise. Not saying this is the wrong thing to do- just putting it in for comparison.


Hi Barcoo,
Yes,tricky thats for sure. I guess its a tradeoff at the end of the
day, you might lose some upside but as none of us can see tomorrow
I think that at times it's prudent to preserve capital and live to fight again another day. Even folk who are really commited to ltbh
should I think have a point at which they will sell.

Having said that though, when I look at my last financial yr
buys and sells its pretty much in favour of not dumping and running
in a hurry. I'm in profit, but I would have been richer for holding
longer in most cases.



No, I havn't gotten to the Buffett books yet, but I hope to
catch up with some reading soon,
Doing Darryl Guppy's TA course atm..and trying to sort some good longer term buys so I can concentrate on other stuff.
I dont have any of that sexy charting software, so I find
all the research part very slow and time consuming..
( too much sitting at the computer for hours, feeling like a battery chicken.)
Getting it sorted though,

Cheers.
FC.

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Harmy, just the thought of trading options gives me white, very
white knuckles, like bunjy jumping,
Not my cuppa at the moment, but thanks..


Cass
I think this is the way most people (including myself in my early days) think about options. When you get into it you realise that it is simply another way of trading with no more downside risk that normal trading.
Buying in the money or near the money LEAPS (which is a form of long term option) can give you years before you need to think about trading them.
What options do is give you the right, with no compulsion, for a small payment, to buy a share at a given price at sometime in the future. If you don't want to buy it you don't have to. In other words you buy if it's gone up and don't buy if it's gone down. The only money you commit yourself to is the initial buy price of the option.
Here's an example. I've just looked the price of options on a company called Rambus (I previously owned shares in this company to my
cost LOL !!).
The share price of Rambus is presently $6.22
If you think the price of Rambus will rise to $7.50 (the strike price)by August then you could buy an option for $1.15 which expires in August 02.
(If you think the price will rise to $10.00 then the price is 60 cents - there are varying price chains - the more the strike price moves away from the current share price the cheaper it becomes.)
If the price doesn't reach $7.50 then the only money you've lost is the original $1.15 - you don't have to buy the share because it didn't reach the agreed strike price. On the other hand if, say, it rose to $9 then it would be worth buying because you add the price of the agreed strike price of $7.50 to the cost of the option which is $1.15 ie $8.65 and with the share price at $9 you would make 35c per share.
I've deliberately kept to "calls" not "puts" which is the opposite of a call ie if you think the price will fall you buy a "put".
Cass - all this is just something to keep in the back of your mind for the future when you may want to investigate options. Bear in mind that for a small amount of money you can control very large numbers of shares because options are usually traded in bundles of 100 shares, or at least they are in the US market. Also bear in mind that you can trade options just as you can shares. You can buy an option one day and sell it the next - in fact that is just what you do because if the price of the share is static or falling then you want to get rid of the option before it expires worthless.
Cheers
Harmy
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Exactly the same thing happened with ADB except I had a TA exit strategy (support level). The result- out with a small loss and have missed the 70% rise.

Barcoo
I didn't know you were a TA man !! I guess you can't win every time but an exit policy for me using TA would have saved me heaps in the past.
Have you read Weinstein ?? - he has one of the soundest methods of exiting that I know of.
Regards
Harmy
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I dont have any of that sexy charting software

Cass
Try incrediblecharts.com - superb charting site for Oz shares.
Regards
Harmy
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Harmy--


Checked out incredible charts this morning and had another go at downloading, sucessful this time, Overwhelming amount of indicators
aren't there! looks like it will save some time once I set it up though;



BTW enjoyed trenchrat's post,thanks Harmy..



Best,
FC.
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R/e options I just remembered something ..
many years ago I went to a talk at the stock exchange about options..
I came home and said to my husband "lets do some optiions trading--
it sounds like such FUN"

he didnt say much but gave me a very funny look!
( we didnt do any options trading either, LOL---)

forgotten all about that......

Cheers.
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I've owned ANZ about 2.5 years. Straight after I bought they dropped about 30%. An exit strategy on that short a time frame would have taken me out at a loss. Because I didn't sell I am up about 80% on my ANZs and as long as they keep showing a general uptrend it's all free money from here. Doesn't mean I take my eye off the ball, just means "ride the bumps".

Barcoo
There's a lot in what you say. My only problem with this approach is that some companies in some sectors, will never return to their former high's. For example, some of the US companies during this last bubble reached absolutely insane high's - and I'm not talking about the dot bombs. Many companies traded at p/e's of 800 or more - Rambus, the company I used for an option example reached $US400 per share post split - it's now trading at $US6.22. It is a fundamentally innovative, sound company but it will never return to it's former glory. During any bubble some sectors crash never to return and during a new bull other sectors will emerge to soak up investors money.
This doesn't necessarily apply to the Oz market because it never went through an insane period. However, look at MYOB - this company issued at $1 which then climbed to over $20 - after the introduction of GST it crashed to around 60 cents - I can't see this company ever returning to its former highs. If you bought high and are hoping for it to return to its former high you will probably have to wait a long, long time.
Regards
Harmy
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