How To Buy A Stock For A 15-20% Discount With Our Buy/Write Strategies
by phil - September 11th, 2009 7:55 am
We are finally over our watch levels, now let's see if they hold!
Our watch levels for our next set of bullish market plays have been Dow 9,600, S&P 1,030, Nasdaq 2,038, NYSE 6,700 and Russell 577 and now they form a floor we will be able to watch so we'll know when to be worried that the rally is running out of steam. Only 2 33% (off the top) levels remain and that's 1,056 on the S&P and 6,959 on the NYSE and we will be officially raising our mid-point from Dow 8,650 to 9,500, which will make 9,000 our new expected floor on the Dow and that means we should be buying here! There's no point in having watch levels if we don't act on them and the best was to work our way into new bullish positions is with our famous Buy/Write Strategy – simply the best way to initiate new stock positions for the average investor.
Given that it is now much less likely that the market drops more than 10% from here, picking up stocks for 20% below their current price is a sensible way to begin building some new positions. By picking value names and concentrating on plays that give us much better prices than the ones paid by the average retail investor using very basic option strategies we can stay ahead of the game and buy with some comfort. This strategy, which we call a "buy/write", as we buy the stock and write options against it, is one of our most effective tools for dealing with a uncertain markets.
Not only does the Buy/Write Strategy give you an initial discount on your ownership of a stock, but you can use variations on this strategy to give yourself another 10-20% three to four times a year! If you have a retirement account that allows you to write covered calls and sell puts in it (check with your broker, of course, some do, some don't) why wouldn't you want to generate an additional discount off the stocks you plan to hold long-term? If you plan on accumulating a stock over time, why on earth would you even consider paying "retail" when we can teach you a simple method that can put money in your pocket?
We no longer have the absolute bargains we used to have but there are still plenty of stocks that are trading…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW.