Stocks always move faster at higher levels than they do at low levels, therefore, an a
general rule, you can make the most money by buying Puts and Calls on stocks selling
between $75 and $150 par share, but there are times when you a buy Calls on stocks selling between $5 and $10 and make a large percentage on the risk.
The next range of price is between $20 and $36, in this range you can often buy Puts and
Calls at the market or within one or two points of the price at which the stock in selling.
After stocks cross $36 to $40 per share they move much faster, therefore you will make
more money by buying in the same way, by buying Calls or Puts on stocks selling at 100 or higher you will make more money as they will decline faster until they get down to around 50 to 40; then in most cases they will decline slower. Therefore your chance of making profits are less in buying Puts or Calls on lower-priced stocks. I will give examples later and you can see by watching and studying charts when there are often opportunities for very large profits when a low-priced stock gets out of the zone of accumulation. In the same way, when a stock is in a congested area at high levels and remains in a narrow trading range for a long time, then breaks out, you can than made money buying Puts just as big decline is ready to start.
EXAMPLES OF TRADING WITH PUTS AND CALLS CHRYSLER MOTORS
1932 – July 30, note Chrysler on the Weekly Chart had remained in a narrow trading
range for 8 weeks after it had made bottom at 5. When it crossed 8 it was over the top of
the previous weeks and indicated higher. At that time you could probably have bought a
Gall on Chrysler around 10. It advanced to 16 in 30 days and was up to 2l¾ in 6 weeks,
giving a possible profit of 10 to 12 points. This trade would have been made by watching
the chart and seeing a long period of congestion in a narrow trading range and then not
anticipating anything but waiting until the stock showed itself by advancing above the tops of the previous weeks; then you would buy the Call.
1933 – April 25, again Chrysler crossed 8 weeks tops. You could probably have bought
a Call at this time around 15 good for 30 days. It advanced to 21½ and the trend did not
turn down, the stock continuing up until it reached 39½, showing a possible profit of
around 24 points. After the stock advanced to where you had a profit of 10 points or more,
you could have bought a Put which would protected the profits, or followed it up with a
stop loss order after you had called the stock which you bought lower.
1934 – February 3 to March 1, Chrysler made tops around 60, showing that it was
meeting great resistance. Around March 1st you could probably have bought a Put at 55.
The stock started e downward move and declined to 49 in 30 days; than rallied to 56 and
you could probably have bought a Call around 55 before the rally took place, which would
have protected your short sales; then you could have stayed short. The stock declined on
May 19 to 36½; then rallied to 44 and continued on down to 29¼ on August 7, giving
another possibility, for a profit of 20 to 25 points on Puts and a limited risk of not more
than $280 if you bought a Put and then bought a Call, after it went down, to protect your
1935 – March 12, Chrysler reached a low of 31. It had made bottom at 29¼ in August, 1934, and made a double bottom at 29-3/8 in September, 1934.
This decline to 31 was a third bottom at a higher level and would have been a place at
which to buy the stock with a stop under 29¼ or to buy Calls because this was a double and triple bottom. Around that time you could probably have bought a Call around 34 or 35 because the stock had been narrow for a long. In 4 weeks it had advanced to 37 and the
trend continued up until May 25, when it reached 49½, giving an opportunity far a profit of at least 10 points net. Then the stock reacted to 41½, which was an old top and a place to
again buy a Call or to buy a Put and trade against it.
In July and August, 1935, Chrysler crossed 60, the old top of 1934, and held for 4
weeks without breaking back under 57, which according to the rules in my books, was a
place to buy with stop at 57. Having crossed top of 1934, it indicated. higher. After
holding]for 4 weeks in a narrow trading range, around September 10 you could probably
have bought a Call at 65. In 30 days it was up to 74½, the main trend strong up. You
could have bought another Call and also bought a Put and held your stock after calling at
the time the first option expired.
In November, 1935, Chrysler advanced to 90 and at no time had it reacted 5 points
after it crossed 60, -This was another opportunity for make 25 to 30 points’ net profit on an original risk of $142.50 and you might have bought more Calls on the way up after you had profits and started handling a pyramid and made much larger profits.
Always watch a stock if it makes a top or a bottom and holds for several months without making the first support level; then when it begins to show activity by breaking to new lows or advancing to new highs, it is the time to buy a Put or a Call. (Refer to Rule 4)
1936 – February 3, Chrysler declined about 10 points, making low at 91½; than
advanced on April 13 to 1037/8; then again declined on April 30 to 915/8 and held in this
range until June 5, when again it was down to 915/8. From February to early June,
nearly 5 months, it held in a narrow range without breaking the low level of 91½, and
making bottom for so many months around this level indicated that it due for a big move
one way or the other. in the early part of June you could probably have bought a Call on
Chrysler around 97, good 30 days, but if you waited until it crossed several weeks’ tops at
98, you would have bought a Call in the early part of July good 30 days, which you could
probably have bought around 100 to 101. In 30 days it was up to 116, when you would
have a profit of 12 to 16 points, It went right on up to 1247/8 on July 27, advancing 32
points from the low of June 5 without ever reacting 5 points. If you had bought stock when it was rear the low or bought a Call, you could have called the stock; then bought a Put to protect it and kept it right on thru, or you could have put a stop loss order on it and carried it thru. In the second month you could have bought another Call, This move certainly gave you an opportunity to make 25 points or more on a Call.
After a sharp advance of 32 points in less than two months, you could naturally expect
a reaction. After these fast moves, as a General rule, the reaction runs one half of 50%.
(See rule 7) When Chrysler was around 124, you could probably have bought a Put at 119
to 117. On August 21 Chrysler declined to 1085/8, down 16 points, giving you a chance to
make profit of 6 to 7 points, anyway, on a Put. Then it held for 5 weeks between 1085/8
and 117; then started up. When it started up you could have again bought a Call. It
advanced 18 points in 30 days, advancing to 130½, affording another excellent opportunity
for profits on Calls.
On November 12, 1936, Chrysler made the high of its move at 138¾. This was an
important point because the top made on October 6, 1926 was 140½. You would sell out
long stock around these levels and go short with a stop above 140½. This was also the level
at which to buy Puts or Ca11s. You could buy Calls and then go short or buy Puts
expecting that it would not go to a new high. You could probably have bought a Put at 130
or higher. In 30 days Chrysler was down to 121; then continued down to 110¾, which
price it reached on January 4, 1537, down 28 points. You certainly would have an op-
portunity on this decline to make 15 or 20 points on Puts, or after you bought the first Put
and it declined, you could have bought a Call for protection and carried the stock on down.
1937 – Around January 4 would be a time to buy a Call or a Put because the stock was
down near the low levels of 1085/8 made on August 21, 1936. You could have bought a Put
at this time and then bought the stock, figuring that it would not break the old low levels
before a good rally, or when it reached 110¾ or anywhere around that level, you could
have bought a Call, probably at 117, good 30 days. Before the 30 days was up Chrysler
was up to 124, and on February 11 advanced to 135¼ giving a possible profit of 15 points.
This would be another place to buy a Call and go short figuring the stock would not cross
the old top at 138¾, or after you saw it hold and not go thru, you could buy a Put. Chrysler
first declined to 124; then rallied to 2347/8 on March 3. This was the third top around the
same level, 135¼ being a lower top than 138¾, and 134 7/8 being slightly lower than the
other top. This was an excellent time to go short of the stock with a stop above old tops and also a good time to buy Puts because the old tops were so close. It declined in 30 days to 120; then you would have bought a. Call to protect your profits on the Put and could have bought another Put good 30 days. By May 13 the stock declined to 106½, down 29 points from the top, giving an opportunity far a profit of 20 points or more on Puts. Then
Chrysler rallied on May 24 t0 115, a rally of 8½ points, which was a fair sized rally in a
weak market. 0n May 24, when Chrysler was selling around 1145/8 Puts were offered at
110, good for 30 days at a cost of $137.50.
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