SyndicateTwo's Stock Board

[MRVLReader]

S2 is there today
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=32027547

[SteveNix]

Maybe he's not back?

[robanson]

S2--Good to see you back--Please give us your crystal ball projection for the markets next week and short term. DOW has been somewhat rangebound--12,500 to 12,000 (about)--seems like it wants to fall off a cliff but keeps getting sucked back to around 12,500.

Anyway, I guess what I'm asking is do you see it rising into the summer months? Or is this just the last, desperate attempt of a badly screwed market to stay afloat?

Thanks S2--like I said good to see you back

[MRVLReader]

S2:Thank you very much for the Chart(BRCM)above!
Please explain the day trading about BRCM and MRVL...
Can you explain the five waves for BRCM in the short term trend too?
Thank you again!

[robanson]

S2--sell in May in FULL EFFECT been shorting the crap out of the YM & lovin' it. Is this the beginning of a larger tumble down or more of short term sell off?

Thanks for your advice.

[robanson]

Thanks S2--terrific insight, so you think Dems will dominate congress as well huh? Yeah the DOW seems to behave very strangely lately; keeps wanted to test/top 13K without a real reason and w/ lot's of reasons to tank.

Question--how do you see rising oil prices affecting markets? Seems like oil approaching a buck-fifty is a good reason for the markets to tube. On the other hand it spells higher profits for oil companies that make up a portion of the DOW.

Also, just for the sake of discussion, do you agree it's bullshit for the gov't to exclude food & energy when determining inflation & the CPI? Really screws folks on social security, military, union jobs whose pay increases are pinned to CPI.

Seems like several forces may be building that spell a severe trip south for the markets. Anyway. Thanks for posting your thoughts.

[SyndicateTwo]

There's an old superstition that typically holds true that the market seems to always rise into an election, especially presidential ones. The reason is mainly due to incumbants doing thier magic to stay elected.

But that's not the case this time. No incumbant. Plus the Dems are going to rout the Repubs in congress. So, there's really no reason for anyone of power to 'pull' anything.

So this year I doubt the market gets juiced artificially. It will just do what it ends up doing. That said, the fundamentals are not getting better. Rick Santelli today on CNBC mentioned the data is actuall either getting worse are staying the same - which is bad. So, the idea that this rally has staying power based on the idea that March saw the lows of the year could be quickly turned upside down into an all out fear to not be the last one out the tiny door as they all realize this is a bear trap - which I believe to be the case.

The problem is how high does the market go before then?

Hmmmmmmm

[robanson]

S2 Thanks for the DOW chart in the I box. So you think a little more potential upside exists until June/July? After that -- and after the 50 & 200 day MA's cross then the DOW brings the pain?

So I know you've talked about this in the past but does the fact that we're in an election year influence anything? For example if the market tanks this summer/fall that will of course be on everyone's mind when they vote?

Thanks again

[alero]

Interesting past couple of days with HAL and with oil/drillers. Its like the first day I think OIL went down after that inventory report. Granted, their options expire tomorrow, so weird shit happens.

CVX was making all time highs and it seemed like XOM wanted to fill that gap it made after earnings. Strong sell off this afternoon.

S2, has the 5th way hit? Or should we expect higher prices?

-alero

[robanson]

S2--Sell in May in full effect, thanks for the advice. From a YM trading perspective do you see a general downward trend throughout May? At what point would you expect it to turn around? I mean at a certain number level (like DOW 10,000) or at a certain time of year?

Thanks again

[alero]

Thats a great analysis S2. I can't believe OIL has made 5 straight record highs for the past 5 days. I also see the decline in volume.

It was interesting today with OIL going up but some of the drillers like XOM and CVX were looking sluggish? It was pretty weird to say the least.

What are some of the clues when the 5th wave finally ends? Are we looking for solid volume on a declime?

[SyndicateTwo]

I was just looking at a bunch of oil related stocks and specifically the July CLM8 oil futures chart and they are ALL making the same pattern - a clear 5th wave move. Oil itself is making a very high volume 5th wave here which I think suggests a washout. Kind of a reverse capitulation.

HAL's chart is similar to oil, but doesn't really make money off of oil like XOM. They just get paid to drill for others. So, oil's rise only benefits HAL if companies and countries think the price of oil will stay this high justifying the expense of paying a HAL to do what they need.

With all these charts hitting the same 5th wave pattern here on declining volume other that oil's chart, I have to assume we're at a near end and all these could reverse dramatically soon.

Today I started to sell 50 share blocks of my HAL position while keeping my long puts. The idea here is to average out of 1/2 position of the stock and re-buy more shares with the larger amount of money created by the high price sales and (hopefully) lower price re-buys.

Also now starting to short the June $50 and $52.50 calls.

This 5th wave move in HAL like I said now could turn at anytime because it has satisfied a 5th wave having made a higher high than the 3rd. But the fibo projections are $50 and then $52 on a 1.50%.

So, the upside is limited.

But 5ths are hard to predict.

I do see a big reversal coming in this entire sector though with all these charts making the same 5th waves.

[alero]

Sounds good...can't wait to see how it plays out.

-alero

[SyndicateTwo]

Interesting setup though as a possible double top. In any case, $50ish should be a big reversal level because HAL is not GOOG.

[SyndicateTwo]

My trade is now to start selling the June $50 calls. If you have a broker like IB, it's no problem with commissions. I'm beginning to sell 1 a day with a 1000 share position. So, the goal is to end up with 10 short at an average hopefully around $1.50+

I sold 1 today at $1.10.


It's one of the most clearly defined 5 wave patterns out there with this being the 5th wave. The projection is $50ish on a 1.38% fibo.

[alero]

Short 47.50's? Almost fetching a dollar....

-alero

[alero]

Whats the deal with our buddy HAL? It seems like it might want to retest that 48ish high? If so, we have a nice double top along with the inverse head & shoulders? When do you think might be a good entry to sell some more calls?

-alero

[SyndicateTwo]

I don't follow it anymore but be careful with it. It's got a big problem with the Stage6 biz. If that doesn't work out, BAIL.

[alero]

I'll let S2 answer, but what I think he might say is that you would close for a profit or close it in the next few days, since even if it was between 45-47, we sold it for 2.85, so the most it would be worth right now is around 2.20.

[The_Net]

S2, re. your HAL trade. What would you do if HAL has been between $45 - $47 after you execute the trades on 4/22? TIA

[grizzly]

S2 do you still follow DIVX? Looks like it may be recovering some from its dismal drop over last 6 months.

[alero]

Looking good, recovered the difference, now looking at pure profit and we still have like 6 more months.

-alero

[SyndicateTwo]

The DOW and S&P are possibly making their highs now and if not now sometime in June/July per the cycle moves.

That sets up for another leg down of some magnitude.

If S&P 1450 gets taken out, then this could lead to more upside and the downside was met.

If you see it trade below 1350 and more specifically 1250, then this 'could' be a major major move down that 'could', and I stress 'could', be the setup for a lower low than that of 2002. That means lower than 750 and DOW < 7200. Ouch!

Really, all the signs are there for that to happen. But it doesn't mean it will.

Whatever happens it's not going to be a fun market for years to come. You probably won't see any major move up in a new secular bull market move until probably 2011 to 2012. So, the best you can hope for now is to see a more sideways range in the indexes and not a major move down.

But, who knows.

That's why I say to roll collars like my HAL trade.

[SyndicateTwo]

HAL making a 5th wave leg up which could set up nicely for a larger selloff in a few weeks whereby we sell $40 deep in the money calls to grab multiple dollars on the decline. Already booked $2 on the cover of the $45 short calls.

Now the trade is risk free with the $55 puts in place and paid for.

Any money from here is money in the bank regardless of what HAL does.

[robanson]

Thanks S2--sage advice regarding FED day, I appreciate it. So, I know you may be wearing out your crystal ball, but tell us what you see going into next week, specifically the DOW. Over 13K, the whole sell in May deal...would you advise trading e-minis w/ a short or long side bias? Or srtictly look to follow the prevailing trend of the day?

Lately I've done OK due to the 'whipsaw' effect...even if I got it wrong the DOW recovered (or fell) & I got made out w/ a decent gain. Been primarily trading from the long side however. Do you advise switching gears and focusing on shorting?

Thanks again S2

[SyndicateTwo]

SMKG --->

[SyndicateTwo]

Like I said, I'm pissed about SIGM. That a-hole analyst sandbagged us on it. But it really isn't about him it's about trading correctly and when it didn't move back up off $20 on the initial fall, that was a sign that something was wrong.

SIGM is a classic example of how full of shit fundamental valuation is. It's so subjective it's just not worth trading on.

What I'm suggesting now because of the chance that that S&P chart above is telegraphing some big downside to come with the 50 crossing the 80 week MAs, you should focus on NOT trading naked and going with my collaring trades. The idea is to make monthly income via shorting calls and using long puts to lock in your position.

So, for example you'd buy 'x' amount of shares of say, ABCD stock at $30. You'd then buy 1 put that is 2 or 3 strikes in the money 7 months out or so for each 100 shares. So, you'd buy 1 Jan 09 $40 put for each 100 shares of ABCD you bought at $30.

Let's assume you pay $11 for the puts.

That means that if ABCD falls, the second it hits $29 you can't lose any more money. The goal here is to sell call options to hopefully have expire worthless each month.

I'm using the HAL trade as my example. So far that trade is working well. The problem with the type of trading for many is that it's SLOW. But very consistent and almost risk free. I didn't have puts on SIGM like I should have.

In this type of trading you're actually making more money as these stocks fall, but are protected in the event they rally because we're long the stock.

It gets a bit complex once your stock starts to move up in a big way because there are a few strategies to take advantage of that happenng like rolling up the puts or short calls. But in this market you probably won't have that problem very much.

With $35k you could probably make $20k this year doing it.

[stockselection]

hello can you give me reading on smkg...

i follow this board now and see your advice .

the depth has really changed on smkg and want a more acurate read..


any would be helpful

[SyndicateTwo]

Remember when you trade e-minis, you have to be a strict trend follower, not top or bottom fisher. The leverage in them will kill you if you try to get cute.

If you're long and then it turns on you, you have to learn to just take the hit and go the other way.

But here's a tip -- on FED day, ALWAYS trade counter trend 5 to 10 min after the announcement. It ALWAYS does that. I don't know why, it just does. For some reason whatever the initial move is up or down, within a few minutes it turns.

[The_Net]

S2, I have 35K to play with eMini, how would I do it especially for tomorrow. I bought calls on SIGM when it was 35. The calls are not worth that much now. I would wait to salvage after the 1Q earning result. What do you think

[robanson]

Thanks S2--wish I'd read your post before now, you were spot on about the shorting opportunity. Huge sell-off. Stunning really (I was, unfortunately, long).

'Sell in May and Go Away' Easy enough.

Appreciate your advice / insight

[SyndicateTwo]

I am really not sure what to expect because as I posted the other day, on one hand you have the 'election year' cycle that gives you on average an 8% gain for the year in the DOW. But then again, look at that chart above of the weekly S&P and you can clearly see without any doubt that 50 week is about to cross through the 80 which signals long term trends. In this case it's down which could portend S&P 1000 or less again.

Now what's very interesting is the larger elliotwave predictions in terms of grand supercycles that have been predicting DOW 5000 or less on this bear run. I don't know how to agree with that, but what is a fact is that the market as represented by the S&P specifically has been 'juiced' by the overweighting of energy stocks. If you took half of them out, the S&P would have never hit new highs from the 2000 March high.

So, we could be in for this "C" wave down to finally put to bed the bear market that many say we were still in from 2000.

When you look forward into the next few years, it does seem that geopolitically and fundamentally there is every reason to expect a major market selloff of major degree. Unless someone pulls something out their rear end to give a huge boost to the economy as a whole, I think we could be screwed.

But then again, remember the 1990s. The same doom and gloom talk was abound in 1992 all through 1995. What happened then? Remember? I remember this little company AOL started to get people's attention by allowing them to finally use their computer to actually do something more than write letters and do spreadsheets. They now could dial up to a network and actually talk to each other via the 'internet' which was this brand new thing.

Three little years later Long Term Capital cratered in 1998 and it was the same as the subprime crap we have now. But it was short lived because all the money was piling into venture capital and internet start ups.

The point is that you never know where or when these new things are going to come from. But I can assure you that someone out there is right now working on it - whatever 'it' is and probably there exists a company trading publically right now that is probably a tiny penny stock that is going to be the 'it' thing.

Short of that scenario, keep all positions protected with puts. I'm just doing monthly covered calls with puts in place just in case as a rolling collar. It's safe and it's a sure thing. I prefer to be more of a risk taker without the puts in place, but it is what it is.

I got sandbagged on SIGM which is a perfect example of what can happen in this crazy type of market. Not again.

If the FED tomorrow cuts and then says something to the effect they are done, because we're at a major resistance level in the S&P, I tend to think the market falls. Even if it gets a quick boost, it should be a short opportunity. But a week out I think that could be the thing that jams the market up 1000 points. But that should be a major short opportunity because remember 'sell in May and go away'. It works and it works for a reason. Don't fight it. Any big rallies here should be selling opportunities with a long side bias not until Sep through Jan.


But believe me, I'm going to be trading tomorrow's e-minis. Fed day can be very profitable.

[robanson]

S2--just checking in about your predictions for the broader market, DOW specificly. Been doing well lately by trading YM's w/ an assumption of upward bias. Do you see that upward trend continuing into this summer? Does the DOW approaching 13K concern you? S&P at 1,400? Seems like it may take some sort of catalyst to break these "hard" resistance levels.

Anyway, appreciate your advice.

[alero]

Trade is looking so far.

-alero

[SyndicateTwo]

Cover those $45s on HAL if it trades to $42. Should bounce there. Let it climb a bit and then re-short the $45s and possibly just roll down to the $42.50s.

[SyndicateTwo]

I don't think you can really compare HAL to XOM because HAL is more of an engineering firm specializing in just doing the grunt work while XOM is a full service bread and butter oil firm.

I think HAL broke out on the OIH breakout, but that trade could be doomed if rate cuts are done.

I'm really struggling with the S&P looking at that chart. Election years typically see an 8% gain for the S&P and that would kind of go against that chart setup. But then again, it is a weekly chart and the market could ramp up here then fall back hard after the election.


All I know is that the most likely scenario is that the market has some major downside in the future, whether that be this year or next.

[alero]

S2, you were definitely right in saying HAL would be trading on its own. XOM and CVX are both up strong on big volume and HAL is down nicely like you predicted. Your hourly chart nailed the intra-day bottom on that 50 MA.

[alero]

XOM and CVX have a lot of open interest in their out of the money calls....

If they end up reporting good numbers, they will take the entire sector higher with them. Heck, their earnings might be a catalyst to make new highs.

SLB reported over a week ago and they took it up.

-alero

[SyndicateTwo]

Hey Alero, I think HAL is going to trade by itself for awhile because it's in a momentum mode. I think the Fed has no choice but to end rate cuts. That should have a big effect as you said on commodities and especially gold. Gold is toast because there is really no supply/demand issue with it. It's a pure gamble trade on weak dollar.

But HAL at most will fall back into the $30s. It's a good stock and company.

I only play inverse ETFs when the opportunity sets up.

[alero]

Man is it hugging the downtrend line! S2, do you think the rate decision will have any effect on our trade? The way I see it is people are already pricing in a 25% cut, thats why the dollar rallied this past week and we saw a little pull back in the commodities. If Ben does in fact do a 25% cut, as people think, he'll also say that they might hold off in the future and this will inevitably take commodities down as well. If he doesn't do anything this time, it will really take them down. I see it as a win-win situation for us, as HAL more or less is aligned with oil, so if oil goes down, they might take all of the oil service stocks down with it.

Take a look at XOM, CVX. Both made a triple top. They are reporting earnings either next week or the week after, so you never know.

Do you play any ETF's? If so, which ones and how?

-alero

[MRVLReader]

Thank you very much,S2!

By the way, why you only look the S&P, not Dow or NASDAQ?

Looks like play ADP is as below:
Buy ADP $44.00,Buy Jan.09 $55 put $11.40 Total: $55.40.
Then sell the May 08 $45.00, you get $0.60 back... right?

Spend same $ amount, compare HAL and ADP, HAL is much better than ADP...

I have ADP Jan. 2010 $40 call ($4.40 paid, now is $7.00+)
Is it the same way that I buy Jan.09 $55 put $11.40...
Then sell the May 08 $45.00...get $0.60 back?

Thank you again!!!

[SyndicateTwo]

Do you understand what the goal is here with the HAL trade? I think ADP is also a great stock for this. You see, what we like to do is trade where the odds are in our favor. Where is that? Obviously where time works for us. And that is simply by selling options, right?

Sounds easy. Ah! But as we know, not everything is as easy as it sounds.

RVBD is a classic example of where these things go wrong. SIGM too.

SIGM for example falls from $73 to $21 in a month. Looking then at the numbers it appears that SIGM is an extremely undervalued stock. So, we buy the thing at $22, sell the $20 calls and even the $22.50 calls for nice premiums. But then what happens? Nothing. It doesn't go anywhere for days. But if it's so undervalued, why no correction? Something was up. And sure enough, word gets out that SIGM is losing major biz to BRCM and it falls to the high teens in one day.

Ah! Short $22.50 calls sounded so good and so sure, but then the bottom fell out. RVBD basically the same story.

So, how do you take advantage of such a great way of trading (selling calls) but limit your risk AND still be able to actively trade?

Well, it's actuall pretty easy and it does allow you to sleep at night. It's what I did with MRVL and never really thought it completely through in terms of trading it as an active trading plan.

You first have to look at these trades compltelely different. Our goal is to set up a trade whereby we are able to have an asset as collateral to use to sell calls against. That's our entire purpose here. Selling naked calls is extremely dangerous for obvious reasons. You're short a $50 call and the stock jumps to $80 you're screwed. But if you own a call option long or even the stock underneath, then you have no problems. Then it just becomes an issue of math. I'll explain later.

So, let's take first our HAL trade. We buy it at $47 let's say, then buy a Jan 09 $55 put for $9.80, then the stock can do whatever it wants to. If it goes to $10, no problem. We lose $37 a share on the stock, but we gain on the put. How much? Well, $55 strike - $10 = $45 value. We paid $9.80, so we make (45 - 9.80 = $35.20). So, we lose $37 on the stock but make $35.20 on the put making our max loss potential $1.80. Another way of looking at this is to just take the put strike of $55, subtract the cost of $9.80 giving you $45.20 and then subtracting that from your basis in the stock of $47. So, $47 - $45.20 = $1.80 as your total max loss risk.


That means you enter the trade upside down $1.80. Now if HAL trades north of the PUT strike of $55 by Jan 09, once you get $1.80 over that $55, it's all profit! If you bought GOOG for example at $200, then bought a long term put options say $20 in the money, once you get over that risk amount, most likely around $10, you're just swiming in money with no risk.

Nice!


So, here's now how we play this. We do this one of two ways and both are gonna cost you to do it. It's why most don't trade this way because most don't have enough money. But you can easily do 20% a year and most likely nearly double your money if you're on top of this trade monthly.

As I said, you're risk going into it is $1.80. That means we need to make first that $1.80 back and the way is to sell calls. Based on that HAL chart it appears it's ripe for a pullback. I think low $40s. Sell then the May $45 calls which are in the money. I said to do it at about $3. Now they're $2.65. The power of time decay.

Most likley these will be 0 by May op-ex. That's $3 in your bank account offsetting the $1.80. Now it's all profit even if HAL goes to ZERO. The goal now will be to do this for June. And then July etc. $3 a month is actually pretty easy rolling this back and forth as the stock trades in its ranges. $50k gets you 1000 shares and 10 puts. (with a little margin) That's $3k a month. Sometimes more when it appears the stock will fall even more.

Actually, some months you'll get double whammies because you'll short the calls, net out $1 or $2 on the decay of the fall, then cover and ride it up again just long the puts and stock, then re-sell the same calls again and get the same $2 or more. It happens.

With this way of trading, you can care less about what the market does or what GOOG did yesterday or what some high flyer did becuase you're focus is on the intricacies of your one stock.

If you want to milk it even more, you trade the stock, too. For example, you bought it at $47, right. You see it's clearly going down on day and then you sell the stock at say $46.40, and then re-buy a few minutes later for $46.10. What just happened? Sure you lost on the original buy of $47 when you sold at $46.40. But you re-bought it at $46.10. That just took out $.30 out of your basis. So, you actually MADE money on the totality of the trade.

Another way to do this is to buy a straddle. But the Jan 2010 max put (furthest in the money) and call. I think that would be the $20 call and $70 put. 10 would cost you I think about $48k. Why so deep in the money? Because it gets your spread a tight as possible. The deeper in the money the less time value each has. That trade would make your risk $2. That means you have to sell calls netting you more than $2 to make it risk free and then start generating income.

But I prefer the stock because you can trade it better. Just a preference.


Look up ADP's options and you can see for yourself how this works.

The market can go down 50% and you probably will do better becuase you make most of your money on the downside or flat. Look at that S&P chart above and you can see the setup and it ain't looking good.

[MRVLReader]

S2,do you think we could do the same for ADP too?
Thanks!

[SyndicateTwo]

yeah, the reversal is coming. Back to the low $40s. If you look at this 30 min chart, $46 becomes the fall apart level. A close under $46 should generate a quick selloff to the $44 level with the $45 calls we're short expiring worthless. Great news for us!

[alero]

WOW, talk about a spinning top lol.

From stockcharts

Spinning Top: Spinning Tops Candlestick lines that have small bodies with upper and lower shadows that exceed the length of the body. Spinning tops signal indecision.

-alero

[SyndicateTwo]

Yeah, the biggest joke in Wall Street is the 'Money Manager'. It's actually nothing more than who's the best at attracting the most money.

Basically it works like this -- if you understand the market, you most likely can come close to matching the S&P's returns, if not even beating it by a tad. But the key is to do it with less risk, or less 'beta'. If you can show high 'alpha' with less 'beta', then you get the biggest peice of the pie.

But like I said, just match or so what the market does. Then you go out, collect tons of money to manage and just make 2% a year on all that money. Most of these guys just watch CNBC all day and do what the crowd is doing.

You make $1 mill a year if you can grab $50mill to manage. And today that's not that much if you can build up a couple thousand accounts.

It's probably harder to do that than actually manage the accounts!



Back to HAL -- looks like today is a reversal day which 'should' see it start to retrace back to the low $40s. Our $45s I think for sure expire worthless but I think the play here is to cover them as soon as we get under $1. Book the $2 profit ($1.85) and then see where the stock is going. If it trades all the way down to the breakout point at $39 to $40, then that would be a great place to sell the puts also for profit for an expected bounce that could get us back into them for $2 to $3 less.

The goal for me is to always grab at least $3 a month out of these trades. These are income trades.

I'm going to put this out in the email today sometime because I'm getting a lot of requests to get back into options.

[alero]

Its definitely an active trade management style, which is what I like. I'm mostly observing, paper trading various options/stock strategies so when I start making money and saving it I can be prepared. I've learned already there is no quick buck, but a slow couple percent a month with good discipline is possible.

I don't want to give most of my money to mutual funds because I know what they are like. I'd rather manage it myself. I worked as an intern for T. Rowe last summer and fall and while the managers barely beat the indices they are taking home a very nice bonus every year.

I'm graduating in a couple weeks. I'll be in DC working for Business Objects, which was just bought by SAP. Its a business intelligence firm. They are going to try to put me on a DoD work track, so even if IT spending goes down the next 1-2 years, the government will (hopefully) always spend on defense work.

I'll be in San Jose for 6 weeks for training before I move down to DC starting July. I'm hoping I have a good time and find stuff to do.

-alero

[SyndicateTwo]

I gotta tell you, the most money I've made CONSISTENTLY - and THAT is the key - has always been with these rolling collars. You simply buy the stock at whatever price - the higher the better - and then short calls and hold puts as your protection. The real way to look at the put price is to divide the amount you pay by the amount of months still open. So, we have about 8 months until expiration on our puts that we paid $9.80 for.

$9.80 / 8 = $1.22 a month in insurance. Not much to protect a $50k investment (on 1000 shares)


HAL looks today like it's beginning it's pullback. The best price target I've seen is $60 with most in the low $50s. So that's a good thing because it lets you know that selling calls will be very profitable on this going forward and that the stock won't run away from you if you're short calls.

The key to making the most off this trade is to time the sale of the short calls that are 1 or two strikes IN the money when you feel it's about to fall back.

I think these short $45s will expire worthless with the stock under $45 next month. Rallies like this usually end with a drawn out basemaking pattern near the breakout. HAL like I said is not GOOG. So, the risk of it taking off are nil.

That means we keep the $2.85 for the calls allowing us to then sell month after month at or just in the money calls with the hopes many times of them calling us out but not really caring if they do.

If the stock falls into the $30s, no prob because we got the puts. Ideally, if the stock really falls into the mid $30s let's say for some reason, we just then sell the puts for profit and hold the stock long naked with maybe a covered call. Let the stock ride up again a bit and re-buy the puts for less. That also takes out $$$ for us.

If you sell the put for $12, then re-buy for $11, you just made $1.

See, there's all kinds of ways to play this and it's actually more active than it seems. And because it's so safe, you literally can do this as an 'all in' trade. All your money can be in one trade because you have such little risk.

[alero]

Sweet, thanks for the explanation. I think the bear call spread is a nice trade right now, but looking at today, still full throttle ahead. I think the trade will eventually work out, inverse H&S aren't always 100% precise. I think the target area is 48-50 before it falls back down. I don't see 52.50 calls trading yet, but 47.50/50 is also a nice trade.

As you said that its sometimes makes sense to allow the trade to get called out. I thought initially why not let it all the time since we only have a buck and change to make up, but then I realized that you would re-buy the stock higher that what you originally did therefore you would have a loss with your put you still have. There really is no free money in the market huh?

Do you usually buy puts as you did to protect yourself with a lot of your trades? It seems like $1 and change for 8 months of protection is pretty to good to know when you go to sleep, right? I means suppose someone is buying equities for their IRA or whatever.

[SyndicateTwo]

I have to add that there will be times when it makes sense to allow the trades to get called out and then the following month re-buy and re-short. Over time, constantly resetting a covered call - as long as you're always protected by a put - will make you more money.