Go to Jeff Salisbury LWGate Home Page.From: Dave Stem <canslimdave2003@yahoo.com>
Subject: Re: [CANSLIM] Options
Date: Sat, 30 Aug 2003 11:52:21 -0700 (PDT)
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- --0-1546899987-1062269541=:2618 Content-Type: text/plain; charset=us-ascii Great reply, DMC... I believe the thing on any trade is to think in terms of risk to total capital. A good rule is to never risk more than 2 % of capital. Therefore, if you have 100,000, you could buy less than 2K in option, because your risk has to account for commission. In one of Trader Vic's books, he talks about how he would use options ONLY after he was well up on the year. And then he would limit his risk on the options to a certain percentage of his portfolio. So, he would use them to try to "hit home runs." But would cap the total losses to something like 10 percent of his capital. Something like that. Point is, according to Trader Vic, going for the big payoffs with options should only be attempted once someone is up quite a bit on the year. And even then, only with a limited amount of the profits. Dave DMC197807 <dmc197807@comcast.net> wrote: Dan, "Not exactly exorbitant." It all depends on how you look at the options, which is why I always try to use a notional value of capital rather than the option cost of capital when I trade options. To clarify, using my example of LF, if you use the normal cost of capital ideas, and you buy 30 contracts, you pay $5,307.50 ($5,250 for the options plus $57.50 in commissions). Just to exit the contract, without any price move at all, costs you $357.50, or 6.7%. Put another way, as soon as you put on the trade, you are down 6.7%. If the stock moves against you as per my example, say a -$5 move, your options are worth 15 cents and you exit, with net $392.50 ($450 minus $57.50), for a whopping 93% loss. If the stock goes up $5, then you exit with $13,085 pure gain, or 246%. In any event, I have to run to the airport this morning, but if you rerun these numbers thinking about the nominal amount of stock you control, and your gains in those situations, then it achieves more reality. The 93% loss ($4,915) becomes more reasonable measured against the 105,000 worth of stock the position controls. The $13K gain as well becomes a more reasonable 12.4% gain on the position, while the loss limitations are very comfortable (as well as the real cost of capital). The mistake most people make is to congratulate themselves on the 246% gains while forgetting the options that expire worthless. DMC - ----- Original Message ----- From: "Dan Forant" To: Sent: Friday, August 22, 2003 4:24 AM Subject: Re: [CANSLIM] Options > Limiting losses to 8% with options is cutting it too thin. 25% is more like > it. Won has good advice for options. I'm not advocating using options in > general, just when certain conditions develop. Ameritrade's options fees are > around 12.50 + 1.50 per for additional contracts. Not exactly exorbitant. > > DanF > > ----- Original Message ----- > From: "DMC197807" > To: > Sent: Thursday, August 21, 2003 10:04 PM > Subject: [CANSLIM] Options > > > > Dan, > > > > The one problem with options is it is very hard to limit yourself to an 8% > > loss, and the timeframe is a question. > > > > Just for example, let's assume you were fascinated with LF and decided to > > buy options. > > > > Would you buy Sept or Oct.?? If you were confident of the breakout you > might > > choose Sept at the money calls, the 35s are on sale for 1.65 X 1.75. > > > > If it broke up to 40, they'd be worth $6 in a hurry. Nice. > > > > But if it dropped back down to 30 they'd be worth 15 cents. Maybe. Add > in > > the expensive commissions and you can see where things go. > > > > You'd have to deal with these things in more of a "nominal amount" > analysis > > to make any sense of it and just assume that $1.75 total loss is not 100% > > loss, but rather a 5% loss on the nominal $35 value of the stock. Since > you > > are risking 1.75 to make $6, that's not a bad thing to do, and it takes a > > lot less capital. > > > > For me, I'd want to know much more about the likelihood / frequency of > > failed breakouts which would give you a better idea of whether or not > > expensive options are a viable way to play CANSLIM. > > > > As to buying cheap options, there's a lot of literature and learning on > that > > subject which is more than this thread probably wants to delve into. > > Suffice it to say SFO magazine has a lot of good articles on the subject > and > > there are a slew of options sites (cboe.com, optionvue, schaeffer's, etc.) > > > > DMC > > > > > > ----- Original Message ----- > > From: "Dan Forant" > > To: > > Sent: Thursday, August 21, 2003 3:53 PM > > Subject: Re: [CANSLIM] Intro: David Pinhasik > > > > > > > What about options?? Buy an in the money call breakout time for a mere > > > fraction of what 100 shares would run,. > > > > > > DanF > > > > > > ----- Original Message ----- > > > From: "Ian" > > > To: > > > Sent: Thursday, August 21, 2003 2:32 PM > > > Subject: Re: [CANSLIM] Intro: David Pinhasik > > > > > > > > > > Hi David: > > > > > > > > I am the minority view, and some would say it is NOT CANSLIM at all, > but > > > > with just $1000, I would consider some sub $5 nancaps with CANSLIM > > > > fundamentals, growth, low P/E, a strong outlook, and a strong chart. > All > > > > these things are the same thing you look for in $15+ CANSLIM stocks, > but > > > > they apply to the nanocaps as well. > > > > > > > > IMHO, your odds on the nanocaps are better (more winners, less > > reversals) > > > > because of the lower relative valuation, and the fact that 'value' > > > investors > > > > come in as well. But for most people, and almost all institutions, the > > > > absolute dollar value of potential gains is too small to consider > them. > > > But > > > > with $1000, they are very attractive. > > > > > > > > Some recent examples - to see what kind of thing I am talking about, > > (not > > > > buy recommendations here, my strategy on these kind of things at this > > > point > > > > is to wait for a pullback to the 13-day ema): > > > > > > > > OMNI > > > > MILT > > > > HSR > > > > > > > > The important thing to note in the charts of all 3 is the 'relative' > > > > increase in volume in the last week or two. Even though the volume is > > > still > > > > very small, they have all seen a quantum jump in daily volume. > > > > > > > > The best place to find these, in my experience, is in the "earnings" > > > section > > > > of IBD. > > > > > > > > Cheers, > > > > > > > > Ian > > > > > > > > > > > > > > > > > > > > > > > > ----- Original Message ----- > > > > From: "The Pinhasiks" > > > > To: > > > > Sent: Thursday, August 21, 2003 8:26 AM > > > > Subject: [CANSLIM] Intro: David Pinhasik > > > > > > > > > > > > > Hi, > > > > > > > > > > I am a computer programmer working for IBM Global Services. Before > the > > > > > market went South, I was active lurker (read Tom's posts very > > carefully) > > > > and > > > > > made 100% in 5 short weeks, and since then have been in cash most > of > > > the > > > > > time except for a few dismal attempts to reenter the market, always > > > > followed > > > > > by a failure. Now, it seems like it may be the time to try again, > > albeit > > > > > carefully. My problem is that I have less than a $1,000 to > > play > > > > > with. Could anyone offer a way to screen CS stocks without paying a > > > > fortune? > > > > > I used to use Tom's Weekly Weeview as a starting point for my > > research, > > > > but > > > > > now I'm clueless. Any suggestions will be happily accepted. > > > > > > > > > > Thanks, > > > > > David > > > > > > > > > > > > > > > - > > > > > -To subscribe/unsubscribe, email "majordomo@xmission.com" > > > > > -In the email body, write "subscribe canslim" or > > > > > -"unsubscribe canslim". Do not use quotes in your email. > > > > > > > > > > > > - > > > > -To subscribe/unsubscribe, email "majordomo@xmission.com" > > > > -In the email body, write "subscribe canslim" or > > > > -"unsubscribe canslim". Do not use quotes in your email. > > > > > > > > > - > > > -To subscribe/unsubscribe, email "majordomo@xmission.com" > > > -In the email body, write "subscribe canslim" or > > > -"unsubscribe canslim". Do not use quotes in your email. > > > > > > - > > -To subscribe/unsubscribe, email "majordomo@xmission.com" > > -In the email body, write "subscribe canslim" or > > -"unsubscribe canslim". Do not use quotes in your email. > > > - > -To subscribe/unsubscribe, email "majordomo@xmission.com" > -In the email body, write "subscribe canslim" or > -"unsubscribe canslim". Do not use quotes in your email. - - - -To subscribe/unsubscribe, email "majordomo@xmission.com" - -In the email body, write "subscribe canslim" or - -"unsubscribe canslim". Do not use quotes in your email. - --------------------------------- Do you Yahoo!? Yahoo! SiteBuilder - Free, easy-to-use web site design software - --0-1546899987-1062269541=:2618 Content-Type: text/html; charset=us-ascii <DIV>Great reply, DMC... </DIV> <DIV> </DIV> <DIV>I believe the thing on any trade is to think in terms of risk to total capital. A good rule is to never risk more than 2 % of capital. Therefore, if you have 100,000, you could buy less than 2K in option, because your risk has to account for commission.</DIV> <DIV> </DIV> <DIV>In one of Trader Vic's books, he talks about how he would use options ONLY after he was well up on the year. And then he would limit his risk on the options to a certain percentage of his portfolio. So, he would use them to try to "hit home runs." But would cap the total losses to something like 10 percent of his capital. Something like that.</DIV> <DIV> </DIV> <DIV>Point is, according to Trader Vic, going for the big payoffs with options should only be attempted once someone is up quite a bit on the year. And even then, only with a limited amount of the profits.</DIV> <DIV> </DIV> <DIV>Dave</DIV> <DIV><BR><B><I>DMC197807 <dmc197807@comcast.net></I></B> wrote:</DIV> <BLOCKQUOTE class=replbq style="PADDING-LEFT: 5px; MARGIN-LEFT: 5px; BORDER-LEFT: #1010ff 2px solid">Dan,<BR><BR>"Not exactly exorbitant."<BR><BR>It all depends on how you look at the options, which is why I always try to<BR>use a notional value of capital rather than the option cost of capital when<BR>I trade options. To clarify, using my example of LF, if you use the normal<BR>cost of capital ideas, and you buy 30 contracts, you pay $5,307.50 ($5,250<BR>for the options plus $57.50 in commissions). Just to exit the contract,<BR>without any price move at all, costs you $357.50, or 6.7%. Put another way,<BR>as soon as you put on the trade, you are down 6.7%.<BR><BR>If the stock moves against you as per my example, say a -$5 move, your<BR>options are worth 15 cents and you exit, with net $392.50 ($450 minus<BR>$57.50), for a whopping 93% loss. If the stock goes up $5, then you exit<BR>with $13,085 pure gain, or 246%.<BR><BR>In any event, I have to run to the airport this morning, but if you rerun<BR>these numbers thinking about the nominal amount of stock you control, and<BR>your gains in those situations, then it achieves more reality. The 93% loss<BR>($4,915) becomes more reasonable measured against the 105,000 worth of stock<BR>the position controls. The $13K gain as well becomes a more reasonable<BR>12.4% gain on the position, while the loss limitations are very comfortable<BR>(as well as the real cost of capital). The mistake most people make is to<BR>congratulate themselves on the 246% gains while forgetting the options that<BR>expire worthless.<BR><BR>DMC<BR><BR><BR><BR><BR>----- Original Message -----<BR>From: "Dan Forant" <DFORANT1@NYCAP.RR.COM><BR>To: <CANSLIM@LISTS.XMISSION.COM><BR>Sent: Friday, August 22, 2003 4:24 AM<BR>Subject: Re: [CANSLIM] Options<BR><BR><BR>> Limiting losses to 8% with options is cutting it too thin. 25% is more<BR>like<BR>> it. Won has good advice for options. I'm not advocating using options in<BR>> general, just when certain conditions develop. Ameritrade's options fees<BR>are<BR>> around 12.50 + 1.50 per for additional contracts. Not exactly exorbitant.<BR>><BR>> DanF<BR>><BR>> ----- Original Message -----<BR>> From: "DMC197807" <DMC197807@COMCAST.NET><BR>> To: <CANSLIM@LISTS.XMISSION.COM><BR>> Sent: Thursday, August 21, 2003 10:04 PM<BR>> Subject: [CANSLIM] Options<BR>><BR>><BR>> > Dan,<BR>> ><BR>> > The one problem with options is it is very hard to limit yourself to an<BR>8%<BR>> > loss, and the timeframe is a question.<BR>> ><BR>> > Just for example, let's assume you were fascinated with LF and decided<BR>to<BR>> > buy options.<BR>> ><BR>> > Would you buy Sept or Oct.?? If you were confident of the breakout you<BR>> might<BR>> > choose Sept at the money calls, the 35s are on sale for 1.65 X 1.75.<BR>> ><BR>> > If it broke up to 40, they'd be worth $6 in a hurry. Nice.<BR>> ><BR>> > But if it dropped back down to 30 they'd be worth 15 cents. Maybe. Add<BR>> in<BR>> > the expensive commissions and you can see where things go.<BR>> ><BR>> > You'd have to deal with these things in more of a "nominal amount"<BR>> analysis<BR>> > to make any sense of it and just assume that $1.75 total loss is not<BR>100%<BR>> > loss, but rather a 5% loss on the nominal $35 value of the stock. Since<BR>> you<BR>> > are risking 1.75 to make $6, that's not a bad thing to do, and it takes<BR>a<BR>> > lot less capital.<BR>> ><BR>> > For me, I'd want to know much more about the likelihood / frequency of<BR>> > failed breakouts which would give you a better idea of whether or not<BR>> > expensive options are a viable way to play CANSLIM.<BR>> ><BR>> > As to buying cheap options, there's a lot of literature and learning on<BR>> that<BR>> > subject which is more than this thread probably wants to delve into.<BR>> > Suffice it to say SFO magazine has a lot of good articles on the subject<BR>> and<BR>> > there are a slew of options sites (cboe.com, optionvue, schaeffer's,<BR>etc.)<BR>> ><BR>> > DMC<BR>> ><BR>> ><BR>> > ----- Original Message -----<BR>> > From: "Dan Forant" <DFORANT1@NYCAP.RR.COM><BR>> > To: <CANSLIM@LISTS.XMISSION.COM><BR>> > Sent: Thursday, August 21, 2003 3:53 PM<BR>> > Subject: Re: [CANSLIM] Intro: David Pinhasik<BR>> ><BR>> ><BR>> > > What about options?? Buy an in the money call breakout time for a mere<BR>> > > fraction of what 100 shares would run,.<BR>> > ><BR>> > > DanF<BR>> > ><BR>> > > ----- Original Message -----<BR>> > > From: "Ian" <IANSTM@SHAW.CA><BR>> > > To: <CANSLIM@LISTS.XMISSION.COM><BR>> > > Sent: Thursday, August 21, 2003 2:32 PM<BR>> > > Subject: Re: [CANSLIM] Intro: David Pinhasik<BR>> > ><BR>> > ><BR>> > > > Hi David:<BR>> > > ><BR>> > > > I am the minority view, and some would say it is NOT CANSLIM at all,<BR>> but<BR>> > > > with just $1000, I would consider some sub $5 nancaps with CANSLIM<BR>> > > > fundamentals, growth, low P/E, a strong outlook, and a strong chart.<BR>> All<BR>> > > > these things are the same thing you look for in $15+ CANSLIM stocks,<BR>> but<BR>> > > > they apply to the nanocaps as well.<BR>> > > ><BR>> > > > IMHO, your odds on the nanocaps are better (more winners, less<BR>> > reversals)<BR>> > > > because of the lower relative valuation, and the fact that 'value'<BR>> > > investors<BR>> > > > come in as well. But for most people, and almost all institutions,<BR>the<BR>> > > > absolute dollar value of potential gains is too small to consider<BR>> them.<BR>> > > But<BR>> > > > with $1000, they are very attractive.<BR>> > > ><BR>> > > > Some recent examples - to see what kind of thing I am talking about,<BR>> > (not<BR>> > > > buy recommendations here, my strategy on these kind of things at<BR>this<BR>> > > point<BR>> > > > is to wait for a pullback to the 13-day ema):<BR>> > > ><BR>> > > > OMNI<BR>> > > > MILT<BR>> > > > HSR<BR>> > > ><BR>> > > > The important thing to note in the charts of all 3 is the 'relative'<BR>> > > > increase in volume in the last week or two. Even though the volume<BR>is<BR>> > > still<BR>> > > > very small, they have all seen a quantum jump in daily volume.<BR>> > > ><BR>> > > > The best place to find these, in my experience, is in the "earnings"<BR>> > > section<BR>> > > > of IBD.<BR>> > > ><BR>> > > > Cheers,<BR>> > > ><BR>> > > > Ian<BR>> > > ><BR>> > > ><BR>> > > ><BR>> > > ><BR>> > > ><BR>> > > > ----- Original Message -----<BR>> > > > From: "The Pinhasiks" <PINHASIK@012.NET.IL><BR>> > > > To: <CANSLIM@LISTS.XMISSION.COM><BR>> > > > Sent: Thursday, August 21, 2003 8:26 AM<BR>> > > > Subject: [CANSLIM] Intro: David Pinhasik<BR>> > > ><BR>> > > ><BR>> > > > > Hi,<BR>> > > > ><BR>> > > > > I am a computer programmer working for IBM Global Services. Before<BR>> the<BR>> > > > > market went South, I was active lurker (read Tom's posts very<BR>> > carefully)<BR>> > > > and<BR>> > > > > made 100% in 5 short weeks, and since then have been in cash most<BR>> of<BR>> > > the<BR>> > > > > time except for a few dismal attempts to reenter the market,<BR>always<BR>> > > > followed<BR>> > > > > by a failure. Now, it seems like it may be the time to try again,<BR>> > albeit<BR>> > > > > carefully. My problem is that <BLUSH>I have less than a $1,000 to<BR>> > play<BR>> > > > > with. Could anyone offer a way to screen CS stocks without paying<BR>a<BR>> > > > fortune?<BR>> > > > > I used to use Tom's Weekly Weeview as a starting point for my<BR>> > research,<BR>> > > > but<BR>> > > > > now I'm clueless. Any suggestions will be happily accepted.<BR>> > > > ><BR>> > > > > Thanks,<BR>> > > > > David<BR>> > > > ><BR>> > > > ><BR>> > > > > -<BR>> > > > > -To subscribe/unsubscribe, email "majordomo@xmission.com"<BR>> > > > > -In the email body, write "subscribe canslim" or<BR>> > > > > -"unsubscribe canslim". Do not use quotes in your email.<BR>> > > ><BR>> > > ><BR>> > > > -<BR>> > > > -To subscribe/unsubscribe, email "majordomo@xmission.com"<BR>> > > > -In the email body, write "subscribe canslim" or<BR>> > > > -"unsubscribe canslim". Do not use quotes in your email.<BR>> > ><BR>> > ><BR>> > > -<BR>> > > -To subscribe/unsubscribe, email "majordomo@xmission.com"<BR>> > > -In the email body, write "subscribe canslim" or<BR>> > > -"unsubscribe canslim". Do not use quotes in your email.<BR>> ><BR>> ><BR>> > -<BR>> > -To subscribe/unsubscribe, email "majordomo@xmission.com"<BR>> > -In the email body, write "subscribe canslim" or<BR>> > -"unsubscribe canslim". Do not use quotes in your email.<BR>><BR>><BR>> -<BR>> -To subscribe/unsubscribe, email "majordomo@xmission.com"<BR>> -In the email body, write "subscribe canslim" or<BR>> -"unsubscribe canslim". Do not use quotes in your email.<BR><BR><BR>-<BR>-To subscribe/unsubscribe, email "majordomo@xmission.com"<BR>-In the email body, write "subscribe canslim" or<BR>-"unsubscribe canslim". Do not use quotes in your email.</BLOCKQUOTE><p><hr SIZE=1> Do you Yahoo!?<br> <a href="http://us.rd.yahoo.com/evt=10469/*http://sitebuilder.yahoo.com">Yahoo! SiteBuilder</a> - Free, easy-to-use web site design software - --0-1546899987-1062269541=:2618-- - - - -To subscribe/unsubscribe, email "majordomo@xmission.com" - -In the email body, write "subscribe canslim" or - -"unsubscribe canslim". Do not use quotes in your email.
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