Pivot Points 1151
I would like to use pivot points to select stocks to be held for one month. I sell out of the money puts and call options with about 1 month to go till expiration. Can anyone suggest how I can use pivot points to get good stock candidates in this one month timeframe? For example, if a stock were near S1, that might be a good candidate to sell a put.
Originally posted by chipmunk
If you wish to avoid a 100% probability of loosing all your money, DON'T BUY OPTIONS. The odds are on your side when you SELL options. If you expect the stock price to increase, stay the same or fall a little, you would want to sell (out of the money) puts. When the option expires, you get to keep all the money you took in on the sale if the final price > than the strike price. There is a very good chance you'll make money but you got to know what you are doing.
I have found that selling options with about 1 month to expiration can be a profitable strategy. As time begins to expire, the options quickly lose value - that is a good thing cause you sold them.
To help me select equity candidates that have a good chance of increasing in the intermediate term, I would like to learn if anyone has experience or an opinion on how to use pivot points to select stocks that are due for an increase - in a 2-4 week timeframe. For example, has anyone done work using weekly or monthly pivot points? You might think of taking action when the price gets in the S1 level. If so, were there other technical indicators used like candlesticks or MACDs use to trigger a position? Blue sky thinking is OK here. Let me know what you think.
To Dollar John: You could purchase calls at S1, but in the end you will make more money if you sell puts. I know of no one who has survived buying options - they are overpriced, that's why you want to sell them.
If the price dropped to an S1 level around $40, I would sell puts say with a 36 point strike price (out of the money)
Have you, Dollar John, any experience using pivot points to trade currencies? If so, could you enlighten me here, please. John Persons (the self annoited pivot point maven) simply gushes about pivot points and currencies.
Day Trading: I have not used pivots when selling options. I suspect that they might be useful in this timeframe. I WOULD LIKE TO LEARN IF ANYONE HAS USED THEM OR HAS AN OPINION O/N HOW THEY (weekly and/or monthly pivots)may be used for longer term 2-4 week investments.
I am glad you joined the forum. I was thinking about buying call options for the Royal Bank (Canada) for long term. What do you think of the following: Current stock price $49, option strike price $40, expiry Jan 2009, option price $11. Stock is trending up, some think will be $100 in a few years.
As for the pivot points, I think they are the best leading indicator. I was amazed at how accurate they were for the month of Sept. for the Euro. The monthly points seem to be the most accurate.
Using the daily figures, I have had mixed results using New York close and 23:00 GMT close. I don't recommend day trading currency.
I think pivot points seem to work best on stocks. For example todays pivot points for the Royal Bank were S3 $48.66, todays actual low, was $48.61. R3 was $49.18, guess what todays high was? $49.18!
As for selecting stocks due for an increase I usually look for divergence in RSI, momentum, MACD, slow stochastic, also trend line breaks in RSI, momentum. I don't like indicators but they seem to work in showing divergence. If there is divergence and it is near S1 or midpoint to S2 for the month for example.