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Dr. Kris
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Dr. Kris has two degrees from MIT because one just wasn't enough. Her life goal was to figure out the universe and having done that (at least to her satisfaction), she decided to tackle something even more difficult—the stock market. Applying the scientific method along with an insatiably... More
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  • Market Notes: Bull Market Stock Buying Strategy -- March 13 2 comments
    Mar 13, 2013 5:04 PM

    4:00 pm ET: Much better than expected retail figures gave a boost to the market, as if it needed it. While the Dow Industrials (DJIA), the S&P 500 (SPX), and the tech-heavy Nasdaq continue to consolidate, the market leading Dow Transport Index (DTX) took off again, ending the day up over 1.6%. Volatility settled back under the ultra-complacent low level of 12 putting our previous prognostication of a retest of the 10 level back on track. Honestly, this market is so bullish it's starting to scare me!

    Bull Market Trading Tip: Buy stocks with cash-secured puts
    I've been looking for some interesting long stock recommendations to pass on to my readers but there are so many good picks out there (especially in foreign companies) that I'm having a tough time selecting just one or two. Rather than making a specific recommendation, I'd like to remind those of you familiar with options trading that you can sell cash-secured puts as a way to lower your cost of entry while also generating cash into your account.

    To those of you unfamiliar with this method of buying stock, what it amounts to is selling a put option (usually the front-month put) at a strike price where you would be happy to own the stock. Let's use Microsoft (MSFT, $27.92) as an example. Say you'd like to purchase 100 shares of the stock. Instead of shelling out $2792 for the stock, you sell one April 27 put for $0.25. Since one options contract represents 100 shares of stock, you're immediately bringing in $25 ($0.25 x 100) into your account (less commission costs). There are two catches to this strategy: 1. Should the share price fall below $27, you have the obligation (not the right) to buy the 100 shares of stock at $27, and; 2. You need to have $2700 of cash available in your account in the event that the stock is put to you. In any case, your cost basis is lowered from $2792 to $2675 ($2700 for the stock put to you less the $25 you took in from the sale of the put) resulting in a savings of $117 (again, not including commissions). Should the option expire out of the money (meaning the strike price is lower than the stock price on the expiration date), you get to keep the $25 that you took in from the sale of the put. Sounds great but remember that you also risk losing out on any price appreciation in the stock during the time you hold the put. Options trading is a two-edged sword!

    If you're interested in this method of buying stocks, you'll need to familiarize yourself with options trading and tell your broker that's what you intend to do. As always, paper trade any new strategy before taking a position (and start small, please).

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Comments (2)
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  • realornot
    , contributor
    Comments (1281) | Send Message
     
    Very simple, Doc.....

     

    Just keep moving $ into this stock...

     

    http://bit.ly/16sSxwv

     

    You will see ▲$ and ♪ to your ears!

     

    Good for both ⚤ !

     

    ❤ BB ♛/♚

     

    ✌ Ron
    13 Mar 2013, 06:41 PM Reply Like
  • Dr. Kris
    , contributor
    Comments (359) | Send Message
     
    Author’s reply » If that guy Neil in your link is attached to it, I'm buying it. He's hot!
    13 Mar 2013, 11:49 PM Reply Like
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