Stock Option Basics
Keeping an Options Track Record Keeps You Honest
By Rick Rouse
Jun 9, 2007 - 11:24:35 PM

When it comes to managing a portfolio it's ultra important to keep track of how well your investments have done in the past right up to where you are currently.  If you have a portfolio that continues to lose money due to bad trading, a track record will hold you accountable and reflect your overall market skills. 

Learning to trade options takes time and skill.  Although I normally write about market moving options and ideas, there are other ways to make money in options with proven low risk options trading strategies like the ones taught here at OptionsMentoring.com.  If you haven't signed up for the FREE CD, you really should.  It's packed with some really good information and again, it's FREE.  Knowledge is the key to successful investing.

Having said that, here's what the track record of my articles would look like.  It's not a fancy spreadsheet or nothing but it contains the following:  Date Opened/ Sold, Company/ Option Symbol, Number of Contracts/ Price, Profit/ Loss, Percentage Return (ROI). 

Note:  The Altria and one of the Dendreon trades were straddle recommendations and provided protection.  Although there was a losing side of the trades, which can be expected, the return was positive.  If a straddle provides you with a profit, count it as a "winning" trade.

10/04/06 - Harrah Jan 75 Call (HETAO) -  10@$3.50  

Note: The trade is still "open" as I mentioned a stop of $27-$28.  I think it's a good idea to up the stop to $30. 

ROI - 120% roughly on ValueClick, looking like a loss of 65% on Monster

Note: The Monster trade is still open but it could be time to pull the plug on this one.  Didn't see the "executive shakeup" coming as Monster replaced yet another CEO, it's third in a year.  A strong brand name doesn't always equal option trading success and while the company could right the ship, this is probably "dead money" for awhile...Consider this trade closed on Monday.

These recommendations were slightly positive on Tuesday but fell prey to the overall market weakness experienced by week's end.  However, the stock got an upgrade from one brokerage firm on Friday and overall, the market made a nice recovery reversing a three-day slide.

Late Thursday, the U.S. International Trade Commission banned imports of new cell phones using Qualcomm chips which infringes on Broadcom's patents.  Although the ruling won't affect existing phones with the chips and should not hurt Qualcomm's sales, it was a big victory for Broadcom as it can now force Qualcomm to pay licensing fees.

I guess the analyst had been bearish on the stock but turned bullish in a big way.  He raised his price target from $21 to $35.  Price targets are always raised and lowered on Wall Street and they can be useful for gaining sentiment on which direction  a stock may be headed.  However, they should not be considered the holy grail because there will be other factors that may or may not drive the stock higher or lower which in turn will decide how well these recommendations do. 

Taser had a solid day on Friday, rising over 2%.  In after-hours trading, the stock added another 18 cents to get back over $11 again.  The 52-week high is $11.22 which was when I first mentioned Taser.  Despite the nasty market sell-off  for three day's before Friday's recovery, Taser traded higher.  This bodes well for the coming week.  It appears the market may have overreacted to a spike in market interest rates for 10-year U.S. Treasury notes.  That may sound complicated but its nice to know what news not only moves stocks but the market as well. 

So there you have it.  Out of 17 trades, 13 have been profitable.  Four are still open, with one showing a profit (current Apple), one even (Taser), and two slightly down (Broadcom).  As you can see, if you have a place in your portfolio for options, then the returns can surely enhance your nest egg.  If you haven't traded options, order the FREE DVD and if anything, paper trade options.  If you wanna make money in options, it takes practice, patience, dedication, and commitment.  Of course, past results are not future results but keeping a track record can remind of you what works and what doesn't.