How To Identify Explosive Stocks To Trade

Written by Peter Lim, CFP

Many traders often come to me with this question, " How can I know what stocks are going to break out in price?"

Indeed, if you can identify what stocks are going to break out in an explosive move, you can jump on these stocks to trade them before they start to move.

While it cannot be denied that this is a trading technique, and have elements of speculation, we can use technical analysis to help us nail most of these moves by using performance studies on price and volume.

There is a predominant school of thought that volume preceeds price. In other words, we will see an increase in volume of a stock before its price starts to increases or moves up. Some call thisrepparttar On Balance Volume outbreak.

Irregardless of what technical analysis software you use, you can even have records of price and volume and put them onto a spreadsheet to computerepparttar 150405 changes in volume and price of a stock or an index to detect these volume outbreaks.

Option Trading Tips - How To Get Paid For A 'Promise!'

Written by James Thomas

Writing Naked Puts is simply selling a put option on a stock that you would be happy to own shouldrepparttar price come down to your desired buy price.

When we write a naked put we are effectively 'promising' to buy someone else's shares inrepparttar 150404 future shouldrepparttar 150405 stock price fall below a certain level.

For doing this we are instantly paid spendable cash for each share that we 'promise' to buy. Ifrepparttar 150406 stock does not fall below this level (the strike price), then we simply keeprepparttar 150407 cash without having to buyrepparttar 150408 stock.


Just like covered calls, only write naked puts on stocks that you would be happy to own and if you want to be more conservative, only sellrepparttar 150409 contract equivalent ofrepparttar 150410 amount of shares you wish to buy, shouldrepparttar 150411 stock fall belowrepparttar 150412 strike price.

As each option contract represents 100 shares ofrepparttar 150413 underlying stock, you can work out how many contracts you can afford to write simply by dividingrepparttar 150414 amount of capital you want to invest in that trade byrepparttar 150415 strike price ofrepparttar 150416 option you want to sell and then divide that number by 100.

Here'srepparttar 150417 formula:

Capital/Strike Price/100 = Number of Contracts

So if you have 20,000 to invest in one trade and let's say thatrepparttar 150418 strike price of option is $10, then you can safely write 20 contracts.

By 'safely' I mean that you can afford to buyrepparttar 150419 stock should you be assigned.

Another thing to remember is that should you be assigned, you would effectively be buying your shares at a discount.

Let's say for writingrepparttar 150420 $10 put option, you received $0.50 cents per share (5% yield).

Cont'd on page 2 ==> © 2005
Terms of Use