1) Smart money gets in
2) Institutions get in with large positions forcing wild swings as they buy on dips
3) Common man gets hyped and just has to be part of the action
4) Bubble phase which is just about the same time as the common man climbing on board.
The 4 is the easiest to see. It is the hysteria, sleeping over night to be the first in line to buy. This is where I begin my exit. If we do our homework, we should get in about 2) stage.
Right now the natural resources are at 2) the large institutions are forcing wild swings as they take postions. This is the stage that using long options will gain, but then to eliminate the time decay we sell short months to offset this decay. Calendars and diagonals are used in this stage.
3)&4) You use straight puts as we just saw in the mortgage business. This stage is very tricky. Plenty of hindsight but not much of seeing a Bear Stearns or a Countrywide until after the fact.
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2 comments:
Is it ok to sell some cfc 5 $ puts; looks bullish short term?
Boy that one is a tough call. My concern is that they are not around before the options expire.
What is nice about selling low strike puts like this is that if the stocks gets down to 2-3 range, you still can sell the 5 strike for something.
One thing CFC has going for it is the Bank of America deal. But I am not so sure of that bank making it either.
Strickly opinion and an educational one, I can see myself selling May 5's. But then we all are accountable for out own trading.
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