As a part of *my* overall strategy, one element I use is to invest around $5000 per month in CALCULATED but RISKY investments - attempting to profit from the risk/reward ratio - via CALL and/or PUT options. This is an amount I am willing to LOSE. However, I typically get back between .5x-to-4x my initial investment. I have known this strategy to do far better than 10% returns, but it requires a great deal of research for a good deal. And sometimes no matter how much good research you do, the open-market does something unexpected.
NOTE: there is only one low-risk way I know of to invest in CALL / PUT options, and that's by SELLING COVERED CALLS against stocks you own, and would be happy to sell at a specified price, at some future date - that topic is covered well elsewhere, and not what this post is about.
I read the weekly investment newspaper - Barron's - online without paying by searching from news.google.com for the article titles in this week's print edition of Barron's. I follow technology, and momentum stocks because of my industry, and interest in these companies: AMZN, AAPL, NFLX, FB and MSFT.
In Sept, I made ~$1150 investing in Nov-20 $95 CALLS on NFLX (+23% over 2 weeks). I've seen NFLX spike
up on
NO NEWS, and trickle back
down on
NO NEWS - symptomatic of a momentum stock. In researching NFLX's Q3 earnings report (released yesterday, 10/14), I read nothing but GLOWING REPORTS.
That made me suspicious. As a natural contrarian, I researched and noticed that NFLX had
MISSED their subscriber growth goals in 3 of the last 4 Q3 reports, and in each case the stock dropped >$10/share each time. I even saw an article with a glowing report that included an upward trending chart, and that's when I knew I had to bet against them.
The Investment: After weekend research, Monday, I bought 10 contracts of NFLX Nov20 $100 PUTS (@$5/contract - $5*100 shares *10 contracts=$5000).
The Plan: sell all contracts just after earnings - if earnings missed expectations, sell Weds morning (today) for a ~$10/contract profit. If earnings met, wait for the stock to drop, and try to get some of my $5K back by selling sometime before 11/20.
After earnings: I
*could have* sold for a ~25% profit this morning.
Reality: BUT... I got cold feet yesterday when I saw the 'whisper numbers' report that NFLX was expected to exceed the Q3 earnings estimate. I sold, Weds early making $885 (17% one-day-earnings).
Do I kick myself? A little. But not much - I made $885 in 3 days. This weekend I'll research my followed-five, and pick a strategy... OR NOT... based on the week's news.
As a strategy - this is NOT for the feint hearted. It can generate short-term capital gains/losses, therefore adding to taxable income. But this is something I've done well in the past with LOTS of research - and ALWAYS with a limited amount of funds - never bet-the-farm. Face punches? Anyone else do something similar?