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Understanding how to apply a strategy
On page 134 of the book ADXcellence is a diagram of what price is doing, using the ADX/ DMI indicator and then what method to enter and what method for trading strategy. Trading is always the same, like a footbal game, same rules, different conditions. Have strategies for profit in all conditions.
Click here for the hand out from the June 27 options webinar with Derek Moore and Candy Schaap
Selling puts is a way to buy at a discount when price is basing or a trend is just starting. Holding your stock builds wealth in the long term trend but then, when there is diveregcen or a target, selling a CC to sell with a premium is a strategy. Options are not 'protection'. Every trade must stand alone, selling a covered call means you are willing to hold the stock, you can also have stops on options. The divergent peak (red arrows) was a place to take profits or sell a CC. In this case AMSC has returned to the weekly support (remember that higher time frames always rule the lower). I have updated the chart and put the options chain. Do you have a strategy?
Dr. Schaap gives you rules to use ADX to understand price action. The low ADX was a place to sell a put, Counter ADX Relative Strength Rule - p.73.
The results are in. AMSC closed at $35.90 on Friday expiration day. Review the TDAmertrade webinar June 27. I showed this chart and options chain. The puts expired worthless, you keep the premium. If you sold a covered call, your stock was taken away, you get the premium and the price of the strike you sold. The $30C stike was $2.50 and expired at $6.00. The $35C strike while it did not rise as much, would still have doubled your money. Click here for the expiration day chart and chain.
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