The Tycoon Report

Attention Stock Investors Looking to Make the Leap to Options

Thursday, September 24, 2009 | Ron Ianieri

Yesterday, Teeka Tiwari talked with you about being patient and waiting get into potential options positions at a great price that sets you up for the best-potential reward with the lowest-possible risk.

However, even before you can identify the right time to enter a position you've been watching, first you've got to know how to find great opportunities that you might want to play!

With about 10,000 optionable assets (i.e., stocks, indexes, Exchange-Traded Funds, currencies, etc. that have options available to trade on them) available in the market today, one problem you will never have is a lack of opportunities to bring your portfolio to life (or, back to life) with options.

Where to Find Options Opportunities

With the launch of our Options GPS educational system less than 24 hours away, we've been getting lots of calls and e-mails from the people on our VIP Waiting List about options.

A question I've seen quite a few times regards where to find opportunities in the options markets. The quick answer is that you really have to look no further than your current portfolio as a great starting place.

Many people shy away from learning about options because they view it as starting all over again -- learning a new language, getting familiar with new techniques and, in their minds, having to find a new and different way to establish positions.

And while, certainly, there is a learning curve involved in properly incorporating options into your portfolio ... it's truly not as steep as it might look from afar.

A Lower-Risk, Higher-Probability Way of Getting the Job Done

Many of you have been investing for some time now. And faced with a portfolio that might look like it's gone 10 rounds with a heavyweight prizefighter during the last couple of years, you might have become even-more-active with your stock positions.

Before we "talk options," let me ask, how did you find the stocks you wanted to own?

You probably did a lot of research -- looking at charts, studying the "rhythm" of how those stocks perform throughout the year, considering how its competitors' stocks behave, and perhaps even applying your favorite types of analysis to give you the bigger picture of where a stock has been ... and where it's going.

There are many factors that go into options prices and the way they behave, but it all starts with the underlying security. In fact, because options act as a surrogate for the underlying asset, your process should be the same -- you're simply going to be using options to execute your plan instead of a stock or other underlying asset.

But what if you've been relying on your broker to pick your stocks and you're ready to break free and/or repair the damage and start making the returns you deserve?

A Starting (or Starting-Over) Point

Whether you're more interested in fundamental analysis or technical analysis -- or a combination of both -- doesn't matter, just as long as you start somewhere.

Personally, I'm more of a fan of technical indicators, although I do find value in general fundamental economic data as opposed to getting into the fundamentals of specific companies, which are mostly subjective.

With hundreds of indicators out there, however, where do you start? One of the key factors for me is to choose those that are more forward-looking than lagging. It's good to see where a stock has been, but you can also get a glimpse of where it might be heading. And, isn't that why we want to use options -- to take advantage of an expected move, even if that means no movement at all?

Most professional traders keep a "short list" of their favorite indicators, and use them all in tandem. Below are some of the more-popular ones that the pros use:

• Candlesticks
• Moving averages
• Pivot points
• Relative Strength
• Line studies based on highs and lows
• Stochastics

There are no one or two signals that work often enough by themselves. That's why most pros use a handful that they mesh together to come up with the most-complete picture possible.

Many individual investors might learn one of them and follow everything to the letter ... and subsequently lose money because, while they learn a set of "rules," they have to learn (oftentimes the hard way) that the rules change along the way.

In other words, these "rules" are really a series of "if-then" statements, that are different at each point of a trend. What might be true if a stock is rising is no longer true if the stock changes course and starts dropping.

One thing you must remember with any indicator(s) you use is that each is extremely subjective, so it's good to learn a few types to give you the clearest-possible picture of where a stock is headed.

The good news is, if you already have a grasp of technical analysis, you already know how to identify stocks and where they're going -- finding the right option strategy to play those stock moves is your next step!

It's Time for Your Profit-Hunting Season to Begin

In his article on Wednesday, Teeka likened finding opportunities to "buck season." Whether you're hunting for big game or big PROFITS, it doesn't matter the choice of the weapon (gun vs. bow, options vs. stocks) -- you use the tool that gets the job done quickly and efficiently.

I'm not really a hunter, but I do love to fish. And the same analogy holds true -- it doesn't matter whether you want to fish with bait or simply to troll -- you have to go to the same fishing grounds, regardless. You're not going to catch anything if you don't go where you're most-likely to bag your next big catch.

But my favorite "sport" of all is option hunting. The rush that comes with buying an 80-delta option for $20 that replaces an $80 stock and positions me for four times the return of the stock investor beats putting on camouflage any day.

Of course, bagging a great option play and also having the rest of the day free to go out on a boat in search of my next "big" catch sounds like a perfect day to me!





Ron Ianieri
Contributing Editor
The Tycoon Report