-- Posted Tuesday, 10 June 2008 | Digg This Article
| Source: GoldSeek.com
Rick’s Picks
Tuesday, June 10, 2008
“Phenomenally accurate forecasts”
Ever eager to see the sunny side of the “subprime mess,” we bought July 17.50 calls in Citigroup yesterday at what turned out to be their lows. This wasn’t a bargain play, mind you, nor do we even remotely believe the bank is about to turn things around. Rather, we went bottom-fishing simply because we doubt Citi shares are ready to plunge to their next milestone on the road to perdition, $15 a share. The stock closed under $20 yesterday for the first time in a decade, and even though it traded as low as 19.40 intraday -- exactly 16 cents beneath a Hidden Pivot support we’d identified earlier -- we expect the stock to hang out near $20 for a long while before it does its inevitable swan dive to yet another dubious divisible-by-$5 milestone.
Our recommendation to buy Citi calls was a Pick of the Day selection at the web site. These trades are geared toward helping subscribers recoup the $350 annual tab for Rick’s Picks and chat room, and they usually involve simple orders that can be parked in advance with one’s stockbroker. We’ve had a pretty decent run with them lately, although we’re obliged to tell you that it could’ve been just blind luck. Most of them entail breaking the retail customer’s cardinal rule of trading, which is to avoid puts and calls altogether. But what fun would that be? We look for an edge, such as it is, by initiating positions at Hidden Pivot Swing points – a tactic that, if executed perfectly, leaves us with perhaps somewhat better odds than we’d face spinning a Big Six Wheel at a casino.
One thing we almost never do is buy options priced above $3 that have a few months left on them. If any retail customer has made money at this we have yet to meet him, or even hear about him, in 35 years of option trading. It’s akin to splitting fives in blackjack – a great way to produce a small fortune from a large one. In real life, options trading is hard work -- doubly so if you tend to buy put options on hunches that a stock or index is about to fall. Stocks sometimes do fall, but almost never for more than three days in a row. About the time you start feeling good about your puts, imagining how you’ll spend your lucre when the double in value, is when you should be dumping them. The key to any put play is to start with modest ambitions and no illusions that you are somehow going to nail the Mother of All Tops. There are bound to be a few traders who succeeds at this. Unfortunately, they will almost invariably be bears covering short positions with, so to speak, a gun pointed at their heads.
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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2008, Rick Ackerman. All Rights Reserved. www.rickackerman.com
-- Posted Tuesday, 10 June 2008 | Digg This Article | Source: GoldSeek.com
