Monday, May 3, 2010

Quick and Cheap Trade of the Day

I had a few minutes to watch the market this morning and I noticed one stock fluctuating lower. I decided to jump in the trade for a few minutes and shorted 100 shares. I didn't have big confidence on its ultimate direction but it was trending lower in the short term.

Once I'm in, I can see the profit/loss columns changing numbers like a video game. Withing a few seconds I'm 2 bucks up in the profit zone, and the price continues to fluctuate. At the peak, I was about $25 up, the it started tracking back up. Not sure of where it was going, I decided to jump back out.

Total profit: $9.09

Total time in trade: 5 minutes

Converted to an hourly rate: $109.08/hr

Or course that hourly rate isn't realistic as there is no guarantee one can keep that average up.

Any profit is a good profit I always say, but the bad news is I missed the entry on another stock I was watching that exploded upwards of 2+ points shortly afterward. The stock did a strange whipsaw where it looked like it was going to tank so I hesitated in pulling the trigger but then it suddenly reversed with a strong move upwards. I never like to chase a stock so it was too late for me to get in at that point for a short term play.

Options Experiment

Instead of taking a direct long position in a stock, I decided to try out an options set up of buying a call spread and selling an out of the money put to offset the cost of the call spread.

The pros are a much cheaper cost getting in the market and less allocation needed compared to buying stock directly.

The cons are if the stock sinks lower than a certain point, I'll be obligated to buy the stock at the strike price of the put. Therefore I can only do this with stocks I don't mind owning to stay out of trouble.

This is a good play if you were planning on owning a particular stock as it gives you an almost free entry to enjoy stock appreciation with minimal allocation of funds.