How to Trade in This Crazy Stock
Market! Sarnoff's Options Rules to Rue
by Paul Sarnoff
Options Hotline
The
extreme volatility of stock prices on the New York Stock Exchange prompts
me to present some strategies for profit and preservation of risk capital
during wild price swings. The strategies apply only to securities whose
shares trade on the New York Stock Exchangeand options on those shares are
traded on an American options exchange:
1.
Do not go long any stock without buying a protective PUT.
2.
Do not go short any stock without buying a protective CALL.
3.
If you have profits in any stockand fear loss of those profitssell the stock
and at the same time buy a "replacement" CALL.
4.
If you have profits in any stock and think the shares will go higher, you
can have your cake and eat it simply by holding the shares and buying a
put to preserve capital and profits.
5.
If you think the price of a stock is too high, don't go short. Just buy
a put. You'll thank me.
6.
If you think the price of a stock is too low, don't buy the shares. Just
buy a call. You'll thank me.
7.
If you think the Dow Jones Industrial Index is too high, just buy a DJX
put. You'll thank me.
8.
If you think the Dow Jones Industrial Index is too low, just buy a DJX call.
You'll thank me.
9.
If you think the Dow could swing both ways during a set period of time,
buy both a DJX put and a DJX call at the same striking price for the same
expiration date (a "straddle"). You'll thank me.
10.
If you hold optionable stocks in your IRA or retirement plan, you should
put them to work by writing (selling) options on the shares continuously.
11.
If you want to position new shares into an IRA it might make sense to sell
"naked" puts to earn the premiums if the shares rise or if the
puts are exercised against you, you have bought the shares for less than
they were when you wanted to buy them.
12. You buy
calls on stocks that rise and buy puts on stocks that go down. You write
(sell) puts on stocks you want to buyand DO NOT sell (write) naked calls
(options not covered by the shares in portfolio).13.
If you hear of any possible merger or takeoverand the involved company shares
are optionable on the options exchangesjust buy calls.Editor's
Note: Paul Sarnoff, a master of
Wall Street, often shared his trading techniques and insights into the gold,
silver and options markets with us to pass along to our readers such as
the one above. We are truly saddened to report that this "legend"
passed away recently.