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Trading Stocks The Safe Way

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GuitarManDan

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Hey man,

Thanks for sharing the background. I think it would help to collect some testimonials and provide real life examples of how your system helped.
 

Big Z

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I will give a little information about the way that I trade. I trade a married put strategy. Basically it means that for every 100 shares of stock that I own I also by a put to hedge my position. This limits my risk and keeps the profit potential open.
For example
Currently I own CMCSA at 37.71 (lets say 100 shares for example purposes)

I also own the CMCSA 37.50 Put option which I paid 1.25 for
The cost basis for this trade is for the trade is 38.96 ($3,896)
The risk on the trade is 1.46 or 3.7%. ($146)

I can not lose more than 1.46 ($146) on the trade plus commissions. The upside is open.

I will adjust this position during the life of the trade in order to reduce the risk or lock in an profits. I don't have to worry about my stop loss getting hit or any gap downs in the stock. It could go to zero tomorrow and it wouldn't matter I am protected with the put option, so the overnight risk is just the 1.46.

Some of the nuances involve knowing when to buy the stock, which stock stocks to buy, how to adjust, which strike price, how far out in time, Risk management, Portfolio Risk management, etc

This is the basic strategy.
Regards,
Z
 
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MidwestLandlord

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I will give a little information about the way that I trade. I trade a married put strategy. Basically it means that for every 100 shares of stock that I own I also by a put to hedge my position. This limits my risk and keeps the profit potential open.
For example
Currently I own CMCSA at 37.71 (lets say 100 shares for example purposes)

I also own the CMCSA 37.50 Put option which I paid 1.25 for
The cost basis for this trade is for the trade is 38.96 ($3,896)
The risk on the trade is 1.46 or 3.7%. ($146)

I can not lose more than 1.46 ($146) on the trade plus commissions. The upside is open.

I will adjust this position during the life of the trade in order to reduce the risk or lock in an profits. I don't have to worry about my stop loss getting hit or any gap downs in the stock. It could go to zero tomorrow and it wouldn't matter I am protected with the put option, so the overnight risk is just the 1.46.

Some of the nuances involve knowing when to buy the stock, which stock stocks to buy, how to adjust, which strike price, how far out in time, Risk management, Portfolio Risk management, etc

This is the basic strategy.
Regards,
Z

This is a long-term buy and hold strategy with insurance against the downside, and the insurance cuts 3.7% off the top-side profitability. (by my count this actually reduces the normal 50% chance of profit on stock ownership)

How many DTE for the put? If this is shorter than a year until expiration, than your top-side profitability is actually cut by more than the 3.7% on an annual basis (assuming you purchase additional puts at or before expiration)

I think in an over-bought market like we have now, this is not a bad strategy. This strategy would of saved a lot of heartache for a lot of people in 2008 for instance.

I'm just trying to understand. You are selling this as a long-term buy and hold strategy...no?

In your example above, your cost basis is higher than the 52 week high for comcast (adjusted for their split in January) in an over-priced market, which means the chances of the stock moving passed your cost basis in the short-term is rather low. In the long-term, I could see comcast moving passed that cost basis, but by then your cost basis will have gone up, due to more purchased puts for protection.

Nothing wrong with a long-term buy and hold strategy, especially with protection as you indicate here...if that's how you're selling it.

But, in my opinion, this is a loss-prevention strategy, not an income strategy.
 
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MJ DeMarco

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I think in an over-bought market like we have now, this is not a bad strategy.

Yes, and it's effectiveness is dependent on a bull market. It's basically buying stock like any normal person and then also buying insurance from a put seller. Unlimited upside, downsize capped. It probably appeals to a lot of people who's risk tolerance is slim and none. IMO, the strategy he teaches is a good strategy to have in your tool-belt.
 

GoodluckChuck

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I see you shared a short overview of your strategy... thanks for that.

I was going to suggest something to you. If you spend some time on this forum you will see that the people successfully selling courses spent a lot of time in the beginning giving away information for free.... It builds their reputation for knowing what they are taking about and leads others to want their guidance.

If you had a thread where you taught people about trading stocks for free, even if you gave away ALL of your info, people would still hire you for guidance. Some people want their hand held.

If they get a taste and want more then that's a good thing. If they're buying a mystery flavor, well, either they won't buy it or they will want their money back when it doesn't taste good.

Don't be so worried about getting paid for your knowledge and spend more energy giving value. No doubt it will come back to you in spades. It's like rule #1 in this community.

I was pumped to see another trading strategy besides options. Hope to see more interesting posts from you.

Cheers
 

MidwestLandlord

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It probably appeals to a lot of people who's risk tolerance is slim and none. IMO, the strategy he teaches is a good strategy to have in your tool-belt.

Agreed.

I think it's especially a good strategy for the older folks who have a vast majority of their wealth and retirement income coming from stocks, and need protection so they don't get creamed in a black swan event like in 2008.

The fact that brokerage firms don't teach their clients this strategy is damn near criminal.

@Big Z , this is valuable stuff to teach, hope it works out for you.
 
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Big Z

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Thank you @MidwestLandlord , @MJ DeMarco , and @GoodluckChuck , for all of your feedback. I really appreciate it.

I've decided to share more of what I am doing taking your advice and maybe this thread will turn into a learning thread instead.

Here are some points about the strategy that may address some of the comments.

1. The market is overbought, but it can stay over bought for some time and a lot of people were saying overbought months ago and this thing still goes up. Having said that if you are standing on the sidelines not wanting to get involved, you could be wasting an opportunity to participate in the upside move. This is one way to do it while protecting yourself.

2. This strategy allows you to take advantage of the markets "rubber band" effect in a way. If the stock were to go down, you will have the opportunity to lower your cost basis in the stock and then when the stock rubber bands back up or bounces , you may have the ability to make a profit.

3. If the stock were to go up from here, this could turn out to be a no risk free trade, by purchasing or rolling the put up and out.

4. Since it is cutting your upside by requiring your stock to advance a bit more before you make money, it may not return large % return per year, but maybe you can make more than having your money sitting in a CD at less than 1%.

5. The timing of the stock purchase is important also, and the type of stock chosen. It would be best to choose strong companies that have strong financials. I believe through chart reading skills the timing can be improved to better than 50/50 and by doing so you get a slight edge. You wouldn't want to buy a stock in a downtrend. A stock that is up trending would be best or one that has been bottoming out with a potential to bounce. I have criteria that I like to use for defining an up trend and other patterns.

6. Within the context of the married put, one can also sell calls against the position and receive some premium further reducing the cost basis or adding profit to the position. Yes this may cap the upside, but then again you could roll up and out on the call before getting called out and give the upside more potential. In other words you can be active within the position to squeeze some more $$ out of it.

Bonus:
7. This can be done in a bear market. You can short a stock and buy a call and do the reverse and now you can play in a bear market or in a down trending stock.

It does take some time to learn chart patterns and understand reading some financial statements of companies and also paying attention to things like earnings. Sometimes also you may be in a position for months at a time but all the while you can be active selling premium or making adjustments tot he position.

Thanks again everyone for the feedback.

Z
 

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An example of a good trade to show the possibilities.
aobc.jpg
I purchased AOBC at 19.99 and also bought the June 20 put at 1.25, my risk was 1.24 or 124.00.

The stock moved up just a few days later and now I rolled the 20 put up to the 22 for .85, my new cost basis is 22.09 bringing my risk down to .09. I have about 2 months left in the option, I don't have to worry about losing on this trade and I can apply other techniques to lock in some extra gains right now. For example I can sell the 25 June call at at .30 bringing my cost down to 21.79 guaranteeing at least a .21 cent profit and if the trade runs up past 25 and I get called out its a 15% profit or 3.21

I could take profits here and make about 5% by selling my stock and also getting back some money and selling my put option which still has some vlaue in it, but with this strategy it allows me to let my trade run and possibly make more while not having to worry about losing any of my capital. So now I am in a no lose situation for 2 months. 5% in in a few days is great but to really make a good year I like to let these go and see how far they can run and I can do it without fear or worry.
Plenty of options at this point to manage this trade.

Nice thing is with this strategy you can follow the rules of cutting losers quick and letting winners run.
 

MJ DeMarco

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Nice thing is with this strategy you can follow the rules of cutting losers quick

By cutting losers you mean unwind the entire trade? Sell the put and the position?
 
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Big Z

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By cutting losers you mean unwind the entire trade? Sell the put and the position?

One of the issues with trading is that psychological we sometimes make a mistake of hoping that a trade will come back to profitability and tend to hang on to it for too long. This might turn a trade into a big losing trade. One big losing trade can be tough to recover from especially if a significant percentage of the account is lost. Example if you lose 50% of your account, you would need to make 100% of what is left in order to get back to where you started. If you lose 30% of your account you would need to make 43% to get back to even.

So we always hear the one of the golden rules, cut your losers quick. It is another way of saying don't let a loser turn into a big loser. It is probably one of the most popular mistakes among new traders and what keeps them from achieving a positive return. We don't like to be wrong or admit that we are, and this translates to "I'm not selling, because if I do I will be admitting that I was wrong", and so they keep it, hoping and praying that it will come back, until they can't take the pain and the get out with the worst outcome.

If you have put protecting the trade can move fast and far away from you, but since your loss is capped, you can take a step back and see, with a clear mind, if you want to make and adjustment or just move on to another trade.
One of the adjustments can be to cash in the put and buy more shares to lower your cost basis if you think the stock is going to bounce, or you could just roll your put down and out and reduce the cost basis on the existing shares only and wait for a bounce. But it is not as emotional because wherever the stock is price is sitting, if it is 10 dollars below or 25 below where you got in , your loss at the moment is the same.

Now on the other hand , if you have a profit and take profits too quickly you are not allowing yourself to have that one trade that just sky rockets and makes a huge difference in the performance for that month, quarter or year.

By trading this way you are protecting yourself from taking a huge hit and allowing yourself to catch a nice winner. If you make twice as much when your are right then when you are wrong you could win less than half your trades and still be profitable.

Thanks for the question

Z
 

Big Z

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I will give a little information about the way that I trade. I trade a married put strategy. Basically it means that for every 100 shares of stock that I own I also by a put to hedge my position. This limits my risk and keeps the profit potential open.
For example
Currently I own CMCSA at 37.71 (lets say 100 shares for example purposes)

I also own the CMCSA 37.50 Put option which I paid 1.25 for
The cost basis for this trade is for the trade is 38.96 ($3,896)
The risk on the trade is 1.46 or 3.7%. ($146)

I can not lose more than 1.46 ($146) on the trade plus commissions. The upside is open.

I will adjust this position during the life of the trade in order to reduce the risk or lock in an profits. I don't have to worry about my stop loss getting hit or any gap downs in the stock. It could go to zero tomorrow and it wouldn't matter I am protected with the put option, so the overnight risk is just the 1.46.

Some of the nuances involve knowing when to buy the stock, which stock stocks to buy, how to adjust, which strike price, how far out in time, Risk management, Portfolio Risk management, etc

This is the basic strategy.
Regards,
Z

So Today CMCSA reported earnings the stock went up which is helping my position. I wanted to update here to give more examples of an adjustment I can make to protect my money and allow it to grow.

I sold the 37.50 put I owned and bought he 40 Put for a cost of .74. This brings my cost basis to 39.70 which means that I now can not lose money on this trade. The worst case scenario is that I make .30 cents, but If CMCSA continues to move higher I make more money. Best of all I can sleep easy allowing the stock to run. I had no problem holding this stock CMCSA during earnings because I was protected and my downside risk was limited.

This type of trading can be boring, but the point is to be in a position where my money is safe and has the opportunity to grow giving me a better return than just having it sit there in the bank making less than 1%.
 
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fhs8

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Thank you @MidwestLandlord , @MJ DeMarco , and @GoodluckChuck , for all of your feedback. I really appreciate it.

I've decided to share more of what I am doing taking your advice and maybe this thread will turn into a learning thread instead.

Here are some points about the strategy that may address some of the comments.

1. The market is overbought, but it can stay over bought for some time and a lot of people were saying overbought months ago and this thing still goes up. Having said that if you are standing on the sidelines not wanting to get involved, you could be wasting an opportunity to participate in the upside move. This is one way to do it while protecting yourself.

How did you determine that it's overbought? I sure don't think it's overbought based on fed funds rate, bond premiums, and inflation.

2. This strategy allows you to take advantage of the markets "rubber band" effect in a way. If the stock were to go down, you will have the opportunity to lower your cost basis in the stock and then when the stock rubber bands back up or bounces , you may have the ability to make a profit.

3. If the stock were to go up from here, this could turn out to be a no risk free trade, by purchasing or rolling the put up and out.

4. Since it is cutting your upside by requiring your stock to advance a bit more before you make money, it may not return large % return per year, but maybe you can make more than having your money sitting in a CD at less than 1%.

You can play all the strategies with options that you want. The simple fact is that Mr. Market has priced options accordingly. If you cut risk you always cut reward. All you can do is control standard deviation. The spread of options and cost of trading make it a worse investment than buying just buying stocks and getting the same type of standard deviation. Then you have taxes. Stocks can offer better tax advantages.

5. The timing of the stock purchase is important also, and the type of stock chosen. It would be best to choose strong companies that have strong financials. I believe through chart reading skills the timing can be improved to better than 50/50 and by doing so you get a slight edge. You wouldn't want to buy a stock in a downtrend. A stock that is up trending would be best or one that has been bottoming out with a potential to bounce. I have criteria that I like to use for defining an up trend and other patterns.

The banks had strong financials in 2006-2007. I think blindly following advice especially from you is a bad idea. Focusing on one metric is a terrible idea. For example Amazon has had horrible financials as far as net income and margins go. Amazon is still expected by analysts to have a 3 trillion dollar market cap in 10 years from now.

6. Within the context of the married put, one can also sell calls against the position and receive some premium further reducing the cost basis or adding profit to the position. Yes this may cap the upside, but then again you could roll up and out on the call before getting called out and give the upside more potential. In other words you can be active within the position to squeeze some more $$ out of it.

What you end up doing is increase trading costs. Did you calculate just how much trading costs your method accumulates?

Bonus:
7. This can be done in a bear market. You can short a stock and buy a call and do the reverse and now you can play in a bear market or in a down trending stock.

How exactly do you determine if a bear market is coming? Shorting after stocks have gone down isn't a good idea especially if a recession isn't happening. The stock market has called nine of the last five recessions.

It does take some time to learn chart patterns and understand reading some financial statements of companies and also paying attention to things like earnings. Sometimes also you may be in a position for months at a time but all the while you can be active selling premium or making adjustments tot he position.

HFT use algorithms and make money off of them in the millisecond an opportunity becomes available and make on average fractions of a penny a trade.

I would NEVER in my life follow your advice even if it was free and you're charging $250.00 for it? You advice in my opinion is very bad advice. How much has your account changed percentage wise?
 
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Big Z

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I don't think you understand what I am trying to do.
But I never said that the market was overbought.
Following the advice of some of the veterans here, I am sharing most of what I do so that people can see how it works. If it's not your cup of tea, I respect that.
I trade with IB and the commissions are very low.
I don't short stocks just because they went down. There is more criteria to it then that. For example right now in this environment I am not shorting anything, the market is clearly in an uptrend.
If you owned the banks in 2006 and had some puts to protect your positions you would not have lost as much.
Thanks for your feedback.
Z
 

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I don't think you understand what I am trying to do.
But I never said that the market was overbought.

I just quoted you as saying that the market was overbought. "1. The market is overbought," is what you said. I also understand exactly what type of stuff you're doing.

Following the advice of some of the veterans here, I am sharing most of what I do so that people can see how it works. If it's not your cup of tea, I respect that.
I trade with IB and the commissions are very low.

Options are still very expensive to trade especially when you consider spread.

I don't short stocks just because they went down. There is more criteria to it then that. For example right now in this environment I am not shorting anything, the market is clearly in an uptrend.

90% of the time the market is in an uptrend.

If you owned the banks in 2006 and had some puts to protect your positions you would not have lost as much.
Thanks for your feedback.
Z

If you bought puts the whole time you would've not gained as much and if you knew banks would go down in 2006 a better action would be to sell your position so you would have not lost as much. All you're doing is lowering the standard deviation which also lowers your expected rate of return. Someone who just buys an ETF, reinvests dividends, and holds it for 20 years will outperform your strategy every time.

...And it's not true that you would have made money buying puts. When a stock goes down the premium on puts increases due to put/call parity. Banks had really high premiums so actually your strategy may have lost just as much money due to time decay than just holding the stock especially when you consider transactions and spreads.

I have studied stocks and options and the market for over 10 years. I have had good years and bad years.

What has been your rate of return since you started investing? Don't give vague answers such as good years and bad years.

If you need proof or statements then I am not the person for you.

So everyone should just take you for your word? Would you take advice and follow it if a homeless guy on the street told you what to do?
 
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Big Z

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You don't have to take my word. You can have your opinion. It's okay.

Just to clarify though. I didn't say the market is overbought. I was addressing the issue about if someone thought that the market was over bought.
Here is the whole thing in quotes.

"Here are some points about the strategy that may address some of the comments.

1. The market is overbought, but it can stay over bought for some time and a lot of people were saying overbought months ago and this thing still goes up. Having said that if you are standing on the sidelines not wanting to get involved, you could be wasting an opportunity to participate in the upside move. This is one way to do it while protecting yourself."

Also if you knew the banks were going down you could short and be rich. That is the point since we don't know we can buy puts to protect in case the stocks go down.

Have a nice day.
Z
 
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Big Z

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I would like to add that,
Yes this thread started out as me trying to sell some education about the way that I trade, and that is why it is here in the market place. It has since taken a slightly different direction, wherein I am now posting more about what I do so that people can see what it is about. My intent now is to share information which hopefully will be helpful to people and not so much to solicit sales. I had contacted MJ about possibly moving this thread somewhere else, but I am not sure that it can be done.
Regards,
Z
 

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I am glad you changed the direction of this thread. Because what it came down to was that you were selling a product which only had six months of back testing and no testimonials. So I think if you would've continued down that path this thread would've took a nosedive.

Now it's an educational thread and if you decide to sell your course in the future it will do much better.
 

Big Z

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Hello everyone. I am planning to update this thread again soon with some more of my style of trading stocks and options. I had to take some time off the forum and the market to focus on an offline business that I am soon to open next month. It's been under construction for a few months and hopefully we get our Certificate of Occupancy early next month.
Also I respectfully request from @MJ DeMarco if he can move this thread out of the marketplace (since I am no longer trying to sell anything) I think it would be better. This is more of an educational or informational thread to communicate how I am navigating the markets.
Happy Holidays
Big Z
 
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if he can move this thread out of the marketplace (since I am no longer trying to sell anything) I think it would be better.

No problem, moved to Investing/Trading!
 

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Yes this thread started out as me trying to sell some education about the way that I trade, and that is why it is here in the market place. It has since taken a slightly different direction, wherein I am now posting more about what I do so that people can see what it is about. My intent now is to share information which hopefully will be helpful to people and not so much to solicit sales. I had contacted MJ about possibly moving this thread somewhere else, but I am not sure that it can be done.

May I suggest you start publishing your trades live via youtube. So you can explain as you trade, remember to insert the right tags on each video (hint: use tubebuddy) and then as you gain more subscribers, you can link to your course. This way you'll have a much larger audience to cater to. Plus people will build their trust in you over time.

I say this from experience, and I use it still.

I don't know why I'm answering this on Christmas day, so have a great one guys. Merry Christmas and Happy hols!
 

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The main thing to keep in mind is whether a market is overbought or oversold, whether it's a bull or bear market (essentially the same thing), or whether they are planning any interest rate changes. I mean aside from technical and fundamental analysis, there are really only two type of serious stock or equity investing.

One is low risk, low return, investing in high quality, top 500 companies with great leadership and innovative ideas. What most people would call "blue-chip stocks" simply meaning safe. Especially if they are developing new products or they are under strong leadership. Under bull markets you can make solid returns just investing in the top companies. During a bear market (which you must be well aware of the signs of a coming bear market), you can do well shorting many of the same companies. And yes it will be helpful to know when to buy and sell.

The other is investing in start-ups with unlimited growth potential. Generally these are high risk, high return. However, if you invest with known killers, seasoned executors who have run successful businesses before, it can go down to medium risk, high return. It will never be low risk because it is new and untested. But it is how many people go from wealthy (a few million) to super wealthy, 50+ million category.

Either way make the money first through a business. A true money-making machine. Then dabble in these types of things. Even a 1000% return on $250 investment is only $2,500. But a 1000% return on $25,000 investment is $250,000. Or a $250,000 investment could be 2.5 million dollars. Compound interest maintains your wealth, explosive growth explodes your wealth.
 
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Either way make the money first through a business. A true money-making machine. Then dabble in these types of things. Even a 1000% return on $250 investment is only $2,500. But a 1000% return on $25,000 investment is $250,000. Or a $250,000 investment could be 2.5 million dollars. Compound interest maintains your wealth, explosive growth explodes your wealth.

Sounds easy when you say it like that :)

The problem now is that the public markets are no longer reliable wealth builders, while the private markets exclude almost everybody who isn’t already wealthy. Which is why many are turning to cryptos recently...
 

Big Z

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May I suggest you start publishing your trades live via youtube. So you can explain as you trade, remember to insert the right tags on each video (hint: use tubebuddy) and then as you gain more subscribers, you can link to your course. This way you'll have a much larger audience to cater to. Plus people will build their trust in you over time.

I say this from experience, and I use it still.

I don't know why I'm answering this on Christmas day, so have a great one guys. Merry Christmas and Happy hols!
Thanks for the suggestions.
 

Big Z

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Happy New Year Everybody,
With this new year I would like to do some examples of trades to give anyone interested more information on what I call trading safe. Please understand that with this strategy you will not have as much gains if the positions go up, but at the same time you will not have as much risk either.
The two basic strategies are the
1. Married Put Strategy
2. Collar Strategy
You can do some of your own research on this on the internet with a simple search (I highly encourage it) to get a better understanding of what they are.
Basically as I have mentioned in other posts its buying stock and insurance to protect against a down move. Also in the collar strategy you can sell a call to to help pay for the insurance.

Here is an example of a trade (This is just an example, I am not taking this position in real trading) for educational purposes. Using the the market close prices from Friday 12/29/17. This is a married put position.
AAL currently trading at 52.03
The Feb 09, 2018 52 Strike Put @ 2.08
Buying 100 shares and 1 put contract would be an investment of
5203.00 + 208.00 = 5411.00
Max Risk until Feb 9 is 211. 211/5411=3.8%
Regardless of what happens the position cannot lose more than 211 between now and Feb 9.
I chose this stock because I like the way the chart looks on it, and I feel that it has the potential to move up.
I will track this position from now to Feb 9 and make whatever adjustments I feel are needed to illustrate (for educational purposes) how I would trade it. (Again I am not trading this in a real account).
If you guys have questions please ask and I will try to answer to the best of my ability.

Thanks
Z
 
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Big Z

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No adjustment today just a recap of where it sits now.
Stock Price = 52.99
Options Price = .70
Total 53.69
Profit/Loss -42.00 If exited today at those prices, but the position is still on.
 

Big Z

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Making an Adjustment Here. Selling the Feb 2, 55.00 Call for 1.44 lowering my cost basis to 52.67. I still hold the 52 Feb 9 Put , so my risk is now down to 67.00 and If I get called out at 55 i will make 233.00
on Feb 2. That would be a 110% on my risk and a 4.3% return on my capital invested. In about 30 Days. Worst case scenario I lose 67.00 dollars now and if the option expires worthless under 55.00 I still have a week left to make another adjustment or just exit.
 

Big Z

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AAL closed on Friday at 58.06. Still have about 2 weeks for the call option to expire. If it stays above 55 I get called out and have a realized profit of 233.00. Looks like that is the likely scenario which is okay by me. Then I can move on to the next low risk opportunity. I will keep this updated if I make any adjustments. My risk on this trade was never more than 211.00 and now stands at only 67 worst case scenario.
 
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Big Z

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Quick update. The call on AAL that i sold expired worthless. My cost basis on the position is 52.67 and I still own the 52 strike puts which expire this week. Today AAL closed at 49.78, but since I have the right to sell at 52 I really would only lose 67.00, if I chose to exercise the option. As of right now My plan is to hold to see what happens later this week. Either I will make another adjustment or exit out of the trade and move on to another.
A quick point, with the recent sell off, using this strategy has kept the money safe without having to worry about taking a big hit to the account.
 

Big Z

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Update: I exercised the put option on Friday on this trade and closed out the stock for 52.00 with a tiny loss of 67.00. I will be putting on another trade for educational purposes sometime later today or this week.
 

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