Last week I bought a stock option call YUM. A fitting name for a company that owns the brands of KFC, Pizza Hut, Taco Bell, Long John Silver’s, and A&W Food Restaurants. I buy stocks in companies where I understand the business model, and fast food is something I see everyday. In the competitive fast food industries companies need to evolve to survive like Pizza Hut is in the delivery business delivering directly to the consumers home and Taco Bell is open late on weekends. Its important to see how a company operates on a daily basis to see if they made a profit or a loss that day. But as a investor you will never see the daily report of each division. However companies have a report card that comes out stating how they did the past 3 months. This report is called the EARNINGS report.
The Earnings Report also called “EARNINGS” is public information on the company web site it even tells you when the report will come out. So as a trader if you know the date you can buy the shares or options before the date if you think the report is going to have lots of profits thus making the price of the stock go up. You want to get in before the report comes out. But before the report comes out sometimes you can also see what management is doing. This is called Insider Transactions. On Jan 27 I notice upper management buying stock in YUM. Who else would know about insider information than the insiders themselves. If the insiders are buying, then follow the insiders and start to buy. Besides its public information. The SEC is like the paparazzi and the insiders are like celebrities. The insiders have to tell you when their buying or selling, its part of the regulations of being upper management. They are buying before the report comes out, which lead me to believe they know something about the report. I bought 5 call contracts at $85.00 or $425.00
In the next few days I saw the $85.00 turn to $100 than 115, 130, 140. and the report did not come out yet. This is where the greed sets in. How high will the stock price go? I was happy with $150.00, but then $225.00 then 275.00. As a trader, greed is very primal. I wanted more than 275.00. So I waited one more day thinking it would go higher, but it didn’t. I should have taken the profits when I had the chance. Everyone else was getting out of the stock. The price was going down really fast so I got out at $59.00 from $85. It was a loss on that trade.
Whats the lesson learned, before you enter a trade have a specific profit goal or time frame which ever is hit first get out and take your money. It is better to take a little money than no money. I’m going to update my check list to take profits #3 take profits
The football is a major event in America. As I watch the Superbowl the commentators are going over all the details of the players like who they are, where there from, how many yards they run or the number of passes thrown or injuries. Looking at all the numbers and information you can almost predict which team will win based on current conditions. Football or any other sport has numerical statistics. This raw data can be charted on a graph creating a better visual on the past performance in real time. I’m pretty sure there is a few graphs out in the web on sports stats. Which can help you win on fantasy football or sports betting every week. However this blog is about the stock market, how to predict the direction.
As a stock trader graphs are one of the tools used to determine which way the stock will go up or down. One chart I like is the simple moving average (SMA). definition
Definition of ‘Simple Moving Average – SMA
A simple, or arithmetic, moving average that is calculated by adding the closing price of the security for a number of time periods and then dividing this total by the number of time periods. Short-term averages respond quickly to changes in the price of the underlying, while long-term averages are slow to react.
Read more: http://www.investopedia.com/terms/s/sma.asp#ixzz1lgP8m81E
The SMA must be used with the price of the stock. The closing price of the stock is the 1st chart and the SMA is the 2nd chart. Therefore your using really two charts overlapping each other. If the SMA is below the closing price then the stock is going up and if the SMA is above the stock price then the stock is going down. The SMA is only one element on the direction of the stock, there are other variables but this is a start in predicting which stock has a better chance of winning.
11 days ago I bought at whole sale Netflix option strike price 130 call option for $284.00 but the first three days the price went as low as 70.00 not a good feeling losing more that 3/4 your investment. This is one reason why option trading is not for everyone. However the earning report was due Jan 25th I was expecting high profits since a few months ago they raised there prices. They lost a lot of subscribers but by raising prices it off sets the lose. I can’t predict the future but the DVD business is slowly dying and Netflix knows this. They have the raw data to support dvd rentals vs streaming videos and I’m sure streaming old videos more out weights dvd. This is how I analyze this business but as a trader you have to think differently.
As a trader what I saw was a 1-2-3 bottom and it broke support after $100.00 thats when I got in. Thinking it had already bottom and maybe was doing a beginning uptrend. But lets not forget the earnings report season. When the report came out the price of the stock shot through the roof. At that point I was already looking for the EXIT strategy. It is better to make some money then to loose it all expecting to get better price. I got out at $615.00 so if we do the math 615-284=$331-20commision=$311.00 .
I can be happy with $311.00 in 11 days.
WOW!!! While setting up my stock alerts I get several emails announcing all my stocks are moving in several directions 2.5% more or less than previous day and volume 50% increase in the last 10 days. I got so many email alerts I’m a little overwhelmed
I finally picked over 34 different stocks in various industries. I used basic fundamental analysis to determine solid companies with good balance sheets and cash flow. My broker account allows to set up a Alert watch list. This Alert will notify me when a stock moves in my favor up or down or lots of volume..I’m excited to see what will happen when the alerts get activated..Although I wont be trading yet I would like to test out how this alerts system works out.
There are hundreds of different stocks in the market and several industries,It can overwhelm the novice trader .I’m going to create my own S&P 500 stock watch list. These stocks will be in several markets like oil,retail,technology,food etc…They will also have to be able to trade options. The way I see it if the company does not trade options it is not a good purchase yet,the company is not mature on wall street. The last requirement is the company will be in the USA. There is plenty of money all over the world but for now I just want to focus in one country.