Question for investors

willow_girl · #1 11/14/10, 01:26 PM

Do you gamble on earnings reports? What do you look for?

Just curious.

#2 11/14/10, 01:45 PM

Up until about 3 years ago, I took an options straddle coming into earnings on stocks that had proven volatility. One of my early winners was NFLX which reported on a Thursday after market, the day before options expiration. July 15, 2004, NFLX closed the day at $32.00. I had bought 20 contracts of each, 35 calls and 30 puts for 25 cents each, a total output of $500. The next morning, it opened at 26.84 and closed at 23.02. I closed my position seconds before the bell to end the day. my puts were worth $7.00 each, a total of $14,000 for a 500 dollar initial cost. You can bet that I did a whole lot of looking after that, and worked on earnings exclusively for a long time. However, at some point, the costs of the options moved up where that the stock price movement, while pretty chunky, didn't really give you much over the cost of taking both sides with options. But the returns for those 2 years were staggering. As was the tax bill that first year. Which is when I learned to quit trading in a regular account and started trading in a Roth IRA.
ETA: My criteria was that over the previous 4 earnings reports, the average move(by percentages, of course) was double the cost of the options, in other words, if the options I would need were to cost 5% of the stock price, the average earnings move needed to be 10% or more of the stock price.

texican · #3 11/14/10, 04:52 PM

I walk the ground, checking the soil, the slope, whether there are good fences and corner posts... whether there's timber on it already, or will it grow good crops, grass, or timber. And of course, the price, and access, and whether there are neighbors or not.

I know your talking about those paper investments... too much trust in strangers involved for me. We'll have to wrassle a while before you get money out of my hands for someone else's 'investment' scheme. Land, price/location right, no problem.

willow_girl · #4 11/14/10, 05:20 PM

Zong, you're a ways ahead of me. I'm new at this game; I've been buying stocks a little ahead of their reports and setting them to sell automatically if the price goes up by a certain amount. Quite a bit less sophisticated! I follow what you're saying, though (I'm learning!) and maybe will work up the courage someday ... LOL!

That's a very good point about the Roth IRA, too, especially since I can anticipate being in a much lower tax bracket by the time I retire.

Texican, nothing wrong with owning land -- I like that, too.

In fact my best investment probably is the house I'm selling on contract, at 6.5% interest amortized over 30 years.

edcopp · #5 11/14/10, 08:34 PM

Paper investments are a gamble. No better than the people who issue them.

MoonRiver · #6 11/14/10, 10:09 PM

Buy the rumor, sell the news.

**clovis** · #7 11/15/10, 12:38 AM

I just try to buy good, solid, dividend paying stocks.

That's not to say that I haven't done some super minor day trading stuff when the market was really volatile.

I'd still love to make money like Zong does.

In a nutshell, figure out what works for you, and stick with it, learning as you go.

Riverdale · #8 11/15/10, 06:06 AM

In the 90's I was fairly aggressive with my 401K (through Fidelity). It grew by leaps and bounds.

Then came 9/11, and overnight (literally) I lost nearly 40K (about ½) of what the 401 was worth.....

When we moved we cashed out my 401 and invested in our house and property. No mortgage is a good feeling.

I am back with the 401 (Safe Harbor), but I am now more interested in low risk (cuz I am oldeer, and still stinging from losing 40K in less than 24 hours).

On Jan 1, I will go from 3% to 6% (my child support will be over and done after nearly 15 years

).

#9 11/15/10, 08:03 AM

Quote:

Originally Posted by clovis

.....
I'd still love to make money like Zong does.......

Did, not does. As the market got more volatile, the cost of options rose to the point the scheme rarely paid off. It's still that way, so my days of huge gains are over. I piddle along with hedged trades, I really like the credit spread strategy, that way I get to take advantage of the big premiums in options.
I learned the hard way in 2000 to never hold a position without some sort of hedge. For instance, in Willow girls trade last week, HMIN, which she bought around $45 and sold for $50-51. While that worked out fine, what if the earnings or forward guidance had not been well received? It could have easily dropped $6. Many times, on earnings, the stock opens the next day with a huge gap from the day before, not giving you an opportunity to get out with a manageable loss. Not being smart enough to know which direction it will go, I like the hedged positions, or straddles, in which I don't care about the direction, as long as it moves. Conversely, in a credit spread, you're best off with little or no movement. However, it's not like waking up with a winner, you have to wait out the option month and watch the time premium erode slowly. Still, you don't have to worry about it, or stress out.
As long as you are hedged, set a stop, and realize the odds on a losing trade(and there will be plenty of them) you'll do fine with any strategy. With the current method I use, I stop out of losing trades with small losses, and let the winners run. So, if you average half winners and half losers and the average move is $500, if you stop out of the losers at -$100 and let the winners run, then, on average, you'll have $1000 of winnings to every $200 lost, or a net +$800. You just can't let the losing trades get you down, or hang on to them for a real beating. the biggest part of successful trading, and my greatest strength is the ability to realize when I am wrong.
I much prefer day trading in index futures, using some really fast charts for a "kick". Having both made a lot(with the earnings straddles) and lost a lot(in 2000 when I just couldn't believe the market would go any lower, LOL) I mostly make a trade or two here and there, just to prove to myself that I can still beat the crooks at their own, rigged game. Of all the things I remember fondly in my life, making $10,000 plus a day just isn't up there. It's OK, but nothing like the thrill of seeing your children happy on Christmas morning, catching a really big fish, growing a 5 pound tomato, eating that first plum of the season. It's just money, and not even the satisfaction of a job well done. I have been generally reviled for making money the easy way, and when I take a hit, or an extended beating, people actually laugh at me and believe that I deserve it. I was told, on this forum, that because I traded in the stock market, I was what is wrong with America. Whatever.

willow_girl · #10 11/15/10, 08:47 AM

Thanks, Zong! I am really enjoying your insight.

Quote:

For instance, in Willow girls trade last week, HMIN, which she bought around $45 and sold for $50-51. While that worked out fine, what if the earnings or forward guidance had not been well received? It could have easily dropped $6.

Yeah, I got lucky with that one! Actually DH had done the research (he's owned this stock for awhile) and felt the earnings would be up, and he was right. (Don't tell him I said that!) For my picks, I look for stock that is not at the high point of its 52-week range, from companies with solid fundamentals. I check a company's history and stay away from ones facing regulatory or other problems that could get gnarly. I'm avoiding the U.S. retail sector entirely as a have a hunch the Xmas season this year won't be pretty. When I find a stock I like, I don't always buy it right away; sometimes I just track it for educational purposes. It's been interesting, and I think I've learned a bit. I have a background in research and analysis, but no one seems willing to pay me for those skills anymore, so I was happy to find a way to put them to good use.

Something else that I learned from watching DH is not to let my money stay anywhere for too long. When you buy, you're gambling that the stock will go up, but once it does, the situation changes -- you're betting that it will maintain the increase. That's a different kind of gamble. I'm not looking at buying a stock at $50 a share and having it go up to $75 -- making a big killing all at once. I'm happy with a smaller gain. I look at it this way: even in better times, a CD was paying around 5 percent, but to get that, you'd have to leave your money in for an entire year. Last week, with the HMIN trade, I achieved the desired return in 3 days ... now my money is free to go work somewhere else for the other 362 days.

I haven't taken a huge hit yet, and when I do, it probably will scare the heck out of me. LOL! Funny thing is, I've never been a gambler ... in fact, years ago I dated a nice guy but decided he wasn't for me in part because he was a little too fond of the casino. Made me nervous! Now I can look at my husband's portfolio on a bad day, and see we're down by $1,000 or more, and not bat an eyelash. Funny, that!

pancho · #11 11/15/10, 09:21 AM

Today over 95% of the trading is done by computers. They can make millions of trades per hour. They buy and sell the same stock many times, making a cent or two each trade. The private investor is just taking a gamble. The success or failure of a company has little to do with trading.

#12 11/15/10, 09:27 AM

you just have to figure out the algorithm. The latest thing is to run up the price real fast on low volume stocks with enough of a short interest to force covering(Look at LIVE or CTID a couple weeks ago). Remember, people program computers. You're dealing with people's ideas at work, at computer speeds. The cent or two you refer to is not going to affect the average retail trader. Its those big moves that you have to be protected against.

pancho · #13 11/15/10, 10:55 AM

Quote:

Originally Posted by zong

you just have to figure out the algorithm. The latest thing is to run up the price real fast on low volume stocks with enough of a short interest to force covering(Look at LIVE or CTID a couple weeks ago). Remember, people program computers. You're dealing with people's ideas at work, at computer speeds. The cent or two you refer to is not going to affect the average retail trader. Its those big moves that you have to be protected against.

Sorry, you may not know how most trading is done today.
The computers may buy and sell the same stock several times in a minute.
Even the speed of the computer and the distance of the signal is very important. One single stock may be bought and sold hundreds of times in a day with the profit each time being a fraction of a cent.

Several of these computers can make a very large differences to the average retail trader. The time it takes you to make a trade they can make millions.
They can bankrupt a healthy company and make a success out of a company that makes absolutely nothing.

Aintlifegrand · #14 11/15/10, 10:58 AM

Quote:

Originally Posted by zong

Did, not does. As the market got more volatile, the cost of options rose to the point the scheme rarely paid off. It's still that way, so my days of huge gains are over. I piddle along with hedged trades, I really like the credit spread strategy, that way I get to take advantage of the big premiums in options.
I learned the hard way in 2000 to never hold a position without some sort of hedge. For instance, in Willow girls trade last week, HMIN, which she bought around $45 and sold for $50-51. While that worked out fine, what if the earnings or forward guidance had not been well received? It could have easily dropped $6. Many times, on earnings, the stock opens the next day with a huge gap from the day before, not giving you an opportunity to get out with a manageable loss. Not being smart enough to know which direction it will go, I like the hedged positions, or straddles, in which I don't care about the direction, as long as it moves. Conversely, in a credit spread, you're best off with little or no movement. However, it's not like waking up with a winner, you have to wait out the option month and watch the time premium erode slowly. Still, you don't have to worry about it, or stress out.
As long as you are hedged, set a stop, and realize the odds on a losing trade(and there will be plenty of them) you'll do fine with any strategy. With the current method I use, I stop out of losing trades with small losses, and let the winners run. So, if you average half winners and half losers and the average move is $500, if you stop out of the losers at -$100 and let the winners run, then, on average, you'll have $1000 of winnings to every $200 lost, or a net +$800. You just can't let the losing trades get you down, or hang on to them for a real beating. the biggest part of successful trading, and my greatest strength is the ability to realize when I am wrong.
I much prefer day trading in index futures, using some really fast charts for a "kick". Having both made a lot(with the earnings straddles) and lost a lot(in 2000 when I just couldn't believe the market would go any lower, LOL) I mostly make a trade or two here and there, just to prove to myself that I can still beat the crooks at their own, rigged game. Of all the things I remember fondly in my life, making $10,000 plus a day just isn't up there. It's OK, but nothing like the thrill of seeing your children happy on Christmas morning, catching a really big fish, growing a 5 pound tomato, eating that first plum of the season. It's just money, and not even the satisfaction of a job well done. I have been generally reviled for making money the easy way, and when I take a hit, or an extended beating, people actually laugh at me and believe that I deserve it. I was told, on this forum, that because I traded in the stock market, I was what is wrong with America. Whatever.

Your family is very lucky indeed..although I am sure you will say that you are the lucky one.. I love a man who knows what is what..

#15 11/15/10, 11:07 AM

Quote:

Originally Posted by pancho

Sorry, you may not know how most trading is done today.
The computers may buy and sell the same stock several times in a minute.
Even the speed of the computer and the distance of the signal is very important. One single stock may be bought and sold hundreds of times in a day with the profit each time being a fraction of a cent.

Several of these computers can make a very large differences to the average retail trader. The time it takes you to make a trade they can make millions.
They can bankrupt a healthy company and make a success out of a company that makes absolutely nothing.

Sure I know how trading is done today. I'll tell you what, since you obviously doubt that I know what I'm talking about, I'll make a trade just for you, live, post my entry and exit in this thread live, then a snapshot of the trade log on my trading platform. Tell me how much you want to see me make(be reasonable, of course), and I'll do it just to show you.

**clovis** · #16 11/15/10, 11:15 AM

I'd love to see that Zong. I'm always up for learning something new, especially in the trades that you are making.

#17 11/15/10, 11:19 AM

OK. Long CL, Dec 10 futures. 5 contracts, 11:19:23.
ETA: Add 5 more at 11:24:07.
ETA 10 more at 11:31:33

**clovis** · #18 11/15/10, 11:26 AM

Quote:

Originally Posted by zong

OK. Long CL, Dec 10 futures. 5 contracts, 11:19:23.
ETA: Add 5 more at 11:24:07.

Okay...explain this for the dumb people like me.

What market? What is CL?

**clovis** · #19 11/15/10, 11:33 AM

Come on Zong...hurry up and post.

If you will post, I can justify to my wife that I am not just wasting time with 'those homesteader people'.

LOL.

#20 11/15/10, 11:34 AM

OK, CL is crude light. oil in other words. when I went long 5 contracts, that means I buy 5 contracts, each for 1000 barrels of oil.