Leverage Strategies for Meeting Personal Goals

For me to be able to fulfill my 18 month goal I need to be able to draw in excess of 6-8K /month net from the market. At present, I have a trading account with approx. 10K in funds. Obviously I need to increase my active trading account to well over 100+K so that I do not need to enter trades that are considered overly aggressive or appear to be too high risk. I want to be in a position in which I only need to make around 5% per month to comfortably meet my present goal. I have found that the use of both stock and option strategies will facilitate this.

Leverage Strategies – Calls & Puts

Over the last few weeks I have been learning option trading strategies. Below is an overview of the call and put strategy that I will use.

1. Assess the current market to assess whether a bullish (call) or bearish (Put) strategy should be used. I need to consider what the intermediate and short-term market trends are, market momentum and volidility. For the intermediate term, consider what trend market shows for the last 3-6 months. For the short term consider what the trend has been for the last 5 days to few weeks. There are a number of indicators for momentum that can be used and volatility can be determined by looking at volatility indexes (VIX, VXO, VXN).
2. Pick some stocks to trade. There are a number of different ways of doing this. My preference is to use Investools or Prophet.net (both are subscriber based, but I think they are worth it) to search for stocks that meet my trade criteria. In addition I research stocks recommended by others I consider to be awesome traders. It must be notes that it is important to develop your own trading style and establish your own trading rules. The way I like to trade and the risks I am willing to take will more than likely be different to how you will trade. As I develop my own trading style and trading systems I will share them with you in future postings.
3. Check the chart for the stock (don’t forget the industry as well) and run your analysis based on trading style and system.
4. Based on the analysis and the current stock price, I will choose an appropriate expiration date and strike price. Since I am fairly new to the game, and need to get experience under my belt, I will generally be picking at-the-money or in-the-money contracts with an expiration date 2 or months out. I will try and purchase at least 2 contracts at a time so that I have the option to sell one if when the trade breaks even.
5. Place the order and monitor on a daily basis.

On my next blog posting I will outline my current option trading strategy and rules for individual stocks

Thanks - Dave