Stock Trading 101


 I saw the image above on a wealth advisors website and thought it was cool.  

A lot of people have asked me over the years about investing.  Recently I have started equity trading again pretty actively.  The results have been stellar and given the current world economy, it seems like the best current investment strategy for the time being.  

I have been using a cash secured "put" strategy to purchase stocks I like.  

I define companies I like as companies that have better than a 10% EBIT vs Total Revenue, Liabilities to Assets of less than 85% and positive free cashflow.  As simple as these items are they illustrate a good picture of a company in the medium term and thus a relatively safe investment.  

I'm also of the opinion that in the time period in which we live we are going to see wilder and wilder swings in asset pricing, with more bubbles forming and popping.  This is a function of many things but needless to say this is the paradigm I'm operating from.  

With that said volatility is going to stay relatively high and in order to take advantage of that it seems prudent to have a short to medium term outlook and use options to capture the profits one can make from volatility.  

In order to understand my strategy it is important that you have a basic understanding of options.  

Here are a couple of good links if you don't know about them:

Option Primer

The way I use options is as a hedging tool.  I like company XYZ but I don't want to pay the current price.  I want to buy them at a discount.  That is why I go out and sell a put option.  I collect the premium on the put option and then wait and see if the price declines to my strike price.  If it does I'm prepared to purchase the underlying stock.  Once I purchase the stock I aggressively defend my basis and identify profitable exists in the 2-6 month time range.  

This strategy has worked well for me personally and for our company and has generated cashflow of around 2.5% per month.  My goal is for it to do 1% a month and thus far I'm exceeding that goal.  

Happy to explain more for individuals that want to know more.  This strategy is not a "day-trading" strategy.  It is a strategy that takes about 20-30, minutes daily with occasional missed days if need be.  

I do trade with Tastyworks.com for many reasons and love their software.  I don't use their methodology but love their company.  Thanks Tastyworks.  

I will be posting trades going forward as well as articles that are interesting to me with some general commentary.  That world is getting crazier, news sources have become very biased and I'm hoping to be a little more reasonable than what I have seen out there.  

Moreover, this is for my kids and family to understand what I do and how I do it if they want to try their hand as well.  


Billy

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