If this market hasn’t convinced you that buy and hold is a gamble - I don’t know what will.
Holding any stock for more than a day has been a sure recipe for heartache (sometimes just an hour will do it) but we have been having a good time, during our member sessions, bottom fishing and concentrating on plays that give us much better prices than the ones paid by the average retail investor.
There are, of course, many, many stocks trading at multi-year lows and it’s still important to select ones that have strong underlying fundamentals that we actually don’t mind holding long-term but, as long as you are willing to own 200 shares of a stock – this system can reliably give you a 10-20% discount off the current market price. It’s simple, easy to follow and is ideal for trading in a volatile market.
Of course when we buy any stock or long-term option position, we should be scaling in. In other words – we don’t assume our timing is perfect and we enter a position in stages. In our strategy section I discuss the 20% entries and the various rules for that so I won’t get into it here but, effectively, selling puts and calls against a stock entry is a way of automatically following the scaling system without having to monitor your position that closely.
Let’s say, for example, we want to buy C at $10.80. If our goal is to buy 200 shares we buy instead 100 shares and also sell the Dec $10 put for $1.15. Additionally, we sell the Dec $10 call for $2.05. The two sold contracts reduce our net basis to just $7.60 and we have taken on two obligations. The call we sold, obligates us to sell our stock for $10 on Dec 19th IF the price of C closes above $10 on Dec 19th. Our second obligation is on the put we sold. By accepting money for the put, we have agreed that the put holder can "put" the stock to us for $10. They can do this at any time prior to Dec 20th, no matter what the price of the stock but, of course, if the stock stays over $10, there would be no point for them to put it to us at a discount.