How to predict when a stock is about to ROLL OVER n DIE . . .

Predicting the directional movement of a stock is a sure way to blow out your portfolio and experience a ton of emotional distress. Ofcourse, there are the occassional home runs that you’ll hear everyone talk about where they are able to claim 200% gains in a matter of days or hours; however, NO ONE can do it consistently.

Yet, we (I) try to do it over and over and OVER again! In my short career as a trader, I’ve been burnt many times trying to do this and I fear I’ll continue to try. But everytime I try, I learn what to do and what NOT to do . . .

1. Only bet $$ that you are willing to lose.
2. If you do get lucky make sure you sell HALF at a 100% gain so your capital is OFF the table, and now you are riding on the “Houses” money.
3. Dont bet randomly; looks for signs of a PEAK or a TROUGH using the charts. Some people will call you a chartist or a gambler, let them. . . The charts help spot a trend . . . and in this trades case, they’ve helped me spot the breaking of a trend.

So w/out further delay, here is our next “speculative” trade. Remember this is a speculative trade unlike our initial NYX play. Only bet $$ that you are willing to lose.

TICKER: LAMR

PLAY: PUT

Reasoning:

1. LAMR trades at a PE of 158. The avg. stock on the S&P trades @ a PE of 17.5.
2. Earnings announcement on the 22nd Feb, 2007 caused a significant UP move in early trading. These gains quickly reversed as the day progressed. The stock opened @ $66.77, traded as high as $71.14 but ended the day at $67.51. When a stock closes towards the LOW of the day after having tried to move up almost 6%, it indicates selling pressure.
3. Technically, the charts r showing that an EXPLOSIVE move is imminent in either direction. Our guess is that this move will be towards the downside.

Entry Point:

Buy the April $60 PUTS upto $1.35. They are currently trading between $1.05 – $1.15 w/ money you are willing to lose.

Exit Points:
Primary Exit (PE): We will sell half @ 100% Gains if we are lucky enough to get to that target. Put a Trailing STOP to the remainder.
Secondary Exit (SE): Set a MENTAL STOP LOSS @ $0.55.

PUT CALENDAR ON SNDK

Reasoning:
1) Technical indicators are showing sell signals and downward trend.
2) Support recently broken with earnings.

Expectation is for continued bearish movement over time.

Entry Point:

March/June’07 PUT CALENDAR SPREAD for a NET DEBIT of upto $2 @ strike $37.50.

Exit Points:
Primary Exit (PE): 20% ROI on the spread.
Secondary Exit (SE):
Bullish: Will look to roll up short put and/or add call calendar
Bearish: Roll short put for credit or if too bearish for rolling, take assignment on short put and convert to collar.

Trade for Feb 8th

BEAR PUT ON NYX

Reasoning:

1) Technical indicators are showing sell signals.
2) Fundamentally the exchange is trading @ a PE of 72. (The average stock on the S&P trades @ a PE of around 17.5)

Entry Point:

June’07 PUT SPREAD for a NET DEBIT of upto $3.80 @ strikes $90 – $80. In other words we’ll buy the $90 Strike Puts and sell the $80 strike puts short.

Exit Points:
Primary Exit (PE): Since we have enough time for this trade to work, we’ll aim for 100% ROI.
Secondary Exit (SE): If the technical signals turn against us, we’ll convert this trade into an aggressive put calendar.