In my trading pit I traded options on all 16 appointed stocks. On any given day only about 5 of those stocks were really active. Casually watching all 16 stocks for 6½ hours a day, 252 days a year, I couldn’t help but absorb their behavior patterns.
Back when Cirrus Logic (CRUS) was a $70 stock it would move in sympathy with a down market. I began noticing a pattern. When the market was down significantly, CRUS would be down too. But 35 minutes or so after the open, CRUS seemed to lose its compassion and run back up to unchanged or higher. I began taking advantage of this pattern by purchasing calls, selling puts or just buying plain old CRUS stock hopefully somewhere near the bottom of the pullback. When CRUS rebounded I would close my option positions or sell my stock.
For those of you that play cards, I’m assuming several other conversations take place during the game. If you’re like me, discussions may include sports, girlfriends, wives and of course lots of laughs. It was the same way trading in the pit and it can be the same way for you too. You can still do whatever you do during the day but casually take notice of the behavior of the stocks you follow especially the first and last hour of the day.
Today I follow 12 stocks. There are still a few that I began trading in my pit over 20 years ago. And guess what? I have only traded options on 3 different stocks this year. That’s it! Stocks are like kids. They are all very different too. Would you want to watch 50 kids? Could you handle watching 50 kids? Me neither.
Follow a handful of stocks to really get to know their behavior patterns and take advantage of that through options. It works for me. Until next time, I hope all your trades are really good ones!