The latest trade alert has been sent out. Please check your email box for details.

Thanks,
AJ Monte CMT
Chief Market Strategist
The Market Guys, Inc.

If you have any questions pertaining to the alert that went out on March 7th, 2009, please post them to this section so I will be able to help you.

Thanks,

AJ Monte CMT

Chief Market Strategist

The Market Guys, Inc.

Q: Does a Put enable a stop-loss order?

A: A stop loss order is something you would use to protect against a drop in the market, but it does not offer you 100% protection. If a stock gaps down overnight and opens at a price below your stop price you can lose money. A put gives you pure protection and acts like an insurance policy for your stock. The put allows you to sell your stock at a predetermined price for a limited amount of time. For this insurance you would pay a premium. If you are using a put for protection you would not expect to make a profit from the investment you have made in the premium. Look at it as a way for you to exchange a small amount of money for the ability to sell your stock at a certain price should the stock drop below your strike price.

Lona C. asks

Q: So with a put option, do you own the stock?

A: If you are using the put as a protective strategy to mitigate the risk associated with owning a stock position then you would own the stock and buy a put. However, you don’t have to own the stock to buy a put. Many investors purchase puts as a speculative play when they believe the price of the stock is going to drop. The value of the put rises when the price of the stock drops. You can buy a put and later sell it for a profit after the stock has moved lower.

James P. asks

Q: Is there a minimum amount of money to try out an option? I’d feel more comfortable trying this to learn it with $100 than $10,000, for example.

A: Option premiums vary from pennies to hundreds of dollars for each option contract. The opportunity comes in finding the right stock to trade along with finding the right price for your trading account. You have to check with your broker to see what the minimum account balance would have to be and you will need to submit an option application that would allow you to trade options. Most brokers have your best interest in mind which is why I would recommend you speak with your broker to see what their minimums would be for your type of account.

George K. asks

Q: So options all expire on the third Friday of the month?

A: For most options, the last trading day for the option is the third Friday in the expiration month. However, the option doesn’t actually expire until 12 noon EST the Saturday after expiration Friday. If you are the buyer of the option you would still have until this time to call your broker should you decide to change your exercise instructions.

Paul Z. asks:

Q: When you say the option is auto’ly executed, that means (for a Call) that you would buy the stock. Is that the end, or can you set it up so that you buy than auto’ly sell?

A: If an option is in the money by a penny or more your option will automatically be exercised on the Saturday that follows expiration Friday. If you own an in the money call this will result in a stock purchase. If you own an in the money put, this will result in a stock sale. Should you decide to trade out of that stock position you will have to wait until the following Monday to trade out of it.

Steve R. asks

Q: Who gets the premiums?

A: The option buyer pays a premium to the option seller. This is the case for both calls and puts.

Ketan S. asks

Q: In your example of buying a $45 put and going long $50/share, if the price does fall to $45/share, would you sell both to break even.

A: If you buy stock at $50 a share and simultaneously buy a protective put with a strike price of $45, then the most you can lose is $5 (50-45) plus the premium you paid for the put. Yes, you could sell both the stock and the put should the stock drop but you can also hold on to the stock position right up until the expiration of the option. Unlike a stop loss order that would immediately sell out of your stock on a downturn there is always the chance a stock could rally back up. Owning a put gives you the protection to limit your loss but it also gives you time to stick with the stock should it bounce back up.

Dave P. asks

Q: What are the advantages of puts versus a stop loss?

A: The biggest advantage is gap protection. Have you ever seen a stock gap down on bad news? The downside to a stop loss order is that it doesn’t protect you during a gap down move in the stock. Put options give you insurance that guarantees you a sale price even if the stock gaps down to zero. The other advantage is what I just mentioned to Ketan, The stock can gap down but you don’t have to exercise the put right away. You can hold on to the position right up until options expiration at which time the stock could have already rallied back up to a higher price than where you bought it.

Susan D. asks:

Q: What factors should you consider when buying a stock: price, history, dividend? Other factors?

A: There are many factors we would consider before buy a stock but price history is the most important factor for sure. The other thing we would have to consider is the length of time we plan on holding on to the stock. If you are a long term investor, than dividends would be something to consider but don’t be fooled by a high dividend paying stock because many stocks have dropped far below what the dividend is paying as a percentage. It all comes back to price. If you are not sure about how to determine what the price trend of the stock is then you are more than welcome to come back to another one of our webinars so you can learn more about technical analysis.

Brad K. asks:

Q: What would you suggest a 25 year old with decent income invest in who is ok with high risk/reward?

A: Just because you have a high risk tolerance doesn’t mean you have to expose yourself to high risk transactions. In fact, some of our most profitable trades have come to us as a result of conservative “lower risk” strategies. I would suggest you take time to learn about our four most profitable option strategies. Our ‘ 5 Points for Trading Success’ book has been a best seller since it was published in January 2008 and it’s a great place to get started.

Click link below to review book:

https://www.themarketguys.com/store/products/The-Market-Guys%27-Five-Points-for-Trading-Success%3A-Identify%2C-Pinpoint%2C-Strike%2C-Protect-and-Act!-(Hardcover).html

John L. asks:

Q: How often are trailing stops moved?…Daily or minute by minute?

A: If you are using the trailing stop feature on the Power Etrade Pro Trading Platform then the stop can be set to automatically track the price or a percentage of price which means the stop price would be dynamically adjusted as the price of the stock moves up. Many times we will manually adjust the price as we see the stock move up as it establishes higher role reversal support levels. This would take more skill to accomplish but with a little practice it becomes much easier to do.

Karen S. asks:

Q: Can one company’s shares be traded on more than one exchange?

A: There are many exchanges and yes, stocks can be traded on multiple exchanges. You may also be referring to the difference between listed shares and shares traded over the counter. Listed companies are generally the large cap stocks identified by a three letter identifier while over the counter stocks are traded on the NASDAQ and usually have a ticker symbol that is four letters. There are also some stocks that are dually listed both on the NYSE and NASDAQ and from time to time you will see stocks move from one exchange to the other as their financial requirements for such listing change over time.

Baleke K. asks:

Q: If this is not a good time for beginners to buy and hold, then what would be the best strategies to consider?

A: Don’t misunderstand what we meant when we say, “this is not a buy and hold market”. This does not mean investors should stay out of the market it just means you should not buy and hold and hope that your stock is going to go up in price. Buy and protect would be a more optimistic way of describing the type of market we are in right now. There are many opportunities for investors and traders alike, but the conventional buy/hold strategy is not the best strategy to put your money into now. The “Golden Buy/Write is a great strategy to learn right now and it wouldn’t take more than an hour to learn. If you would like more information about our modified version of a covered call which we have labeled the Golden Buywrite then just send an email to info@themarketguys.com and we will get you’re the information you need to get started.

Q&A from The Market Guys Webinar dated 021209

Joanne B. asks:

Q: Do I always want to issue a stop order when i purchase a stock?

A: The Market Guys philosophy for trading is to protect, protect and then potect again. The decision to get out of a bad position should be made even before the trade is entered into the market. We strongly suggest that traders use sell stops for any equity position held, especially in today’s highly volatile conditions.

Debie M. asks

Q: How do you make “trading” work including commissions and taxes, i.e., always having short-term transactions?

A: We make money in the market by putting our money in the direction of the money flow. In other words, money moving into a stock generally pushes the price of that stock up. We can easily see this in a price chart, so when we put our money in a stock that is going up in price there is a greater chance for us to profit in such a stock. After the stock has gone up in price we then look for signs of money moving out of the stock. This would be displayed on a price chart that displays a “pivot point” to the downside. Once we see weakness in the price we sell out of our positions and move to cash. Of course there is more to it than what I have just explained but the basics are simple. Buy when others are buying then sell when the sellers begin to push the price down.

David W. asks:

Q: What does a new trader do to analyze stocks and what does he need to know to figure out what it all means.

A: This question comes together with the question Debbie just asked. Our primary tools for analyzing stocks are price charts. Think of them as weather vanes of the financial markets that give us the direction of the money flow. The biggest mistake people make is when they try to buy low and sell high. The better way to look at the market is to look for stocks that are strong and buy them as they are going up with the intention of selling them higher. The “buy low sell high” can get you into real trouble in a bear market because when you buy in a falling market you increase your chance of losing on your trade or investment. Learn what support and resistance means to a trader and use these concepts to increase your odds for profiting. This is what The Market Guys talk about most in our seminars, webinars and radio programs. It’s essential that you learn these concepts before getting into the market otherwise you could be putting yourself at risk while trying to profit in the market.

Melissa N. asks:

Q: what are options?

A: Equity Options are contracts that are traded on most exchanges allowing the buyers of the option contracts to control a stock at a certain price. There are two types of option contracts, which are calls and puts. Buyers of call options lock in a buy price for a limited amount of time for a particular stock and buyers of puts lock in a sell price for a limited time. If you were to buy a call or a put you would have to pay what’s called a “Premium” to the person selling the call or put to you. It would be best to approach the world of options the same way you would approach learning a new language. Learn a word or a phase at a time and as you digest these concepts you will become more fluent in the” language” and over time you will understand many of the strategies used to trade options. We have produced a video for you through E*Trade Financial entitled Options for Beginners. Click on the link below and you will have a better idea of how options work.

https://us.etrade.com/e/t/jumppage/viewjumppage?PageName=trading_education_videos&SC=JGTMWEB