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[QUOTE]Originally posted by Chart walker: [QB] I will talk and use the “cubes” (QQQQ) and the DIA for examples. I like these two because they are extremely liquid, very small spread between bid and ask and there are far more strike prices, not $5 apart like some. The QQQQ and DIA options receive preferential tax treatment too. 60% of your gains are considered to be long term even if held for just a single day, -taxed at 15%. File with form 1256, -QQQQ and DIA options only, not the stock… Now onward!! :) I’ll start with the easiest, and work to very complicated, long plays that traders are using Strategy # 1 [*Trading rules may vary when trading in regular stocks] GAP Strategy Simple, wait for a gap up or down in Pre-market and bet that the gap will close. Buying a 2-3 month out option is very safe, however higher returns may come from a shorter-term option. Remember, this play should only last one day then be sold. It’s really that simple. Look back at the history of the cubes and how the gap closes usually that same day, otherwise closes soon after. I think you need to keep this strategy in mind no matter what “play” you are doing because this is easy money, don’t be greedy, it doesn’t have to close 100% in order for you to sell… PAPER trade the GAP strategy using 1, 2 and 3-month options and see which one returns more, then post your findings here for all of us please… Strategy # 2 Buy “extreme” PUTS or CALLS. Charts Strategy!! :) We have talked about this in detail here, it’s nothing more then buying options when there is a negative or positive crossover on a weekly charts indicator that has reached a certain low or high on it’s indicator where previously there were pivot points. Not all crosses will be “extreme” wait till the indicator gets low or high enough. –Again a look at the gallery page at stockcharts.com at the QQQQ’s will show you what I mean. If it head fakes more up or down concider it a gift, cause you're back is against the wall when playing extremes. Super safe! Strategy # 3 “The Big Easy” [For use when the market is turning BULLISH] 1)Purchase “at-the-money” call options, choosing the options which expire 6 – 9 months out. 2)Sell the next month “at-the-money” call option. For every 10 long-term calls you own, sell 7 short–term options if the strike is slightly in-the-money, or sell 8 short-term options if the strike is out-of-the-money. 3)Do nothing else till expiration. 4)At expiration, buy back any in-the-money expiring calls and let out-of-the-money calls expire worthless. If the stock is within .25 of the strike price of an expiring option, place a “buy at the market close to close” order to buy back the calls. 5)At expiration, if the stock is within 8% of the strike price of your long-term calls, go to #2 above. Take any cash you generate from these new sales, and put on new positions as if you were starting at # 1. 6)At expiration, if the stock price is more then 8% above of below the strike price of the long-term calls you bought, close them out (sell them) and start at #1 above. NOTE: To be used in a BULL market’s beginning, not end! If the market falls by 5% or more there will be loss, a 5% loss happens about twice a year FYI. This strategy involves using only a couple of trades at or near expiration day each month. No need to worry about Delta values or the other GREEKS. This is a good way to get your feet wet, -without taking a bath J Strategy # 4 “Going to the MOON!” To be used when you believe a single stock is going to the moon sometime soon in the next 2 years. If you are right, you will earn 400% (or so) more then buying the stock alone. This is RISKY and a lotto ticket but WOW if it pays off! Use a small portion of your portfolio for these IMO. In all the other strategies we don’t want the stock going way up or down and make our money if the market is flat and adjust our positions as the market cycles, but here we must have a price movement UPWARD. If you think you can pick a stock that will double in two years there is a BIG payoff. As a bonus if your stock pick doesn’t “fly” we’ll set it up to get your money back and you don’t lose anything. If the stock falls quickly you will loose money, but if it goes down slowly, or just a little you should be able to get all of your money back… 1)Buy the longest Term LEAP possible at the strike price nearest the current stock price. 2)Calculate the monthly decay the LEAP will experience over the time period if the stock stays the same price. 3)Each month, sell only enough out-of-the-money calls to bring in sufficient premium to cover the monthly decay. Remember, with this strategy we are not trying to make money from selling short-term calls. We are betting on the stock going up strongly. We are selling only the minimum out-of-the-money calls to get our investment back in case we’re wrong about the stock. Golden rule: When selling out-of-the-money calls, if the premium for a 2-month out call is more then twice as great as the premium for the one month out call, sell the 2-month out call. [This gains you more money per month than 1-month call, and you get your money now so it can be put to use on some other investment]. ...more coming soon :) -GNight Board! Chart ~ [/QB][/QUOTE]
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