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Stockhaven’s Classroom 5/15/12

Topics include: What determines which stocks you trade options on? How might one’s strategy change during the summer? Discussion some options plays surrounding Facebook, explaining order entry’s for option trades, adjusting to smaller ranges in AAPL, breaking out of a trading slump… Tickers reviewed: LNKD, TRIDQ, DGRI, FFN, GWBU, ORYN, JBLU, RARS, HD, UVXY, SHLD

Below is a text version of the submitted questions:

1.) When it comes to trading options, are there certain aspects of the stock that you look at differently, then you would when your just trading the stock? For example when you trade options on AAPL, where it trades 25 million shares a day, as apposed to CRM which I’ve seen you trade a decent amount that on average trades 2.5 million shares a day. Not only is AAPL much more liquid, but its price is is just over 4 time greater. That would lead me to believe that AAPL’s options are also much more liquid then CRM, or similar stocks.

So what makes you say you want to trade options on CRM or AMZN? Or what makes you say you don’t want to trade them? Is it the same criteria as just trading the stock like price action, volume, near support or resistance, history of making a move in the direction you want it to go, etc? Or are there other things that you take into account when your trading options, that don’t come into mind when you’re deciding to play a stock itself.

2.) How does your strategy change for summer trading to be successful? Does that mean watching a wider range of stocks & looking for smaller gains?

3.) Would you mind covering what the different options orders are and how they work?
For example do you use “buy open” to purchase a call/put and then to close the trade use “buy close” or “sell close?”
If you could go over what each one is used for that would be very helpful.

“Buy Open”     “Sell Close”     ”Sell Open”     “Buy Close”
buy        sell            shorting    covering your short

4.) I enjoy day trading AAPL options because it has such violent momentum when it decides a direction for the day. However, I have noticed the past week or two that AAPL has had MUCH smaller body candles than in weeks past, often bouncing intraday many times. I find a lot of people are having more success playing the channel that AAPL sits in during a given day, but I find it hard to trade this since often times it will peek out of the channel (triggering a buy on a channel break with good volume) but then come right back down.

My question is twofold: First, is there a good way (without indicators – I find they make things a lot harder to read) to judge when AAPL is going to simply channel intraday vs. having a big move? Second, how can I better gauge when AAPL is breaking out of its channel vs. bouncing off it and coming right back down?

5.) I have been with you guys since January and have grown a huge amount since I did my 1st trade ever in February. I am in a horrible slump right now, any idea’s on how to get out of it? Basically I can’t make myself buy into stocks. I see it will be a good gapper based off of what I learned and the next morning it gaps up. I failed to get in however. I follow a chart and see a bounce play, I see the bottom and still I can’t force myself to get in. I hesitate and then by the time I try to enter the stock has already gone up and I don’t chase. The 1st month I made over 32 trades and now find myself lucky if I make 1 a week. I haven’t lost a huge amount or anything like that. Is the market being slow effecting my trades? I really want to try and force myself into GWBU for scalp trades tomorrow when I see good entry points. Any tips or idea’s to make myself play more? At this point I almost feel like I would rather lose money and play a stock then to just sit around watching anymore.

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