In my ongoing series of how to become a better investor, I have taken the Coca Cola Stock trade from this morning to explain in detail how I analyze a stock to determine when to buy some shares and when to engage in Put Selling or other option strategies.
Knowing how to analyze a stock is key when risking capital in an investment. It does not matter how investors decide to select stocks. Many investors simply pick stocks at random or use the dividend aristocrats or achievers list as their guidelines for stock selecting. Other investors use their friends, newsletters or websites to tell them what stocks to buy or do option trades against. No matter where investors get their stock selections from, there are simple steps every investor can follow that will assist them in quickly analyzing any stock to determine the best moment to trade in the stock either through options strategies or buying and selling the stock.
Only through consistent profits can an investor grow his capital. Continually taking losses, no matter how small, is damaging to both the overall capital available to an investor and for ongoing as well as future trade possibilities. Even having your capital tied to a losing trade despite having confidence that eventually it will work out, means your capital cannot grow as quickly as it should. Time is the biggest element in compounding capital. Every month that capital is not performing is another month where the compounding effect on the overall portfolio is not being realized. It is crucial that every investor understand that their capital must constantly be performing to compound capital into real wealth. Knowing how to analyze a stock is fundamental for consistent profits. It is vital to know when to enter the trade or when to wait and look elsewhere.
Step 4 – Become A Better Investor
This is Step 4 in my ongoing series on becoming a better investor. This is a FullyInformed Members strategy article. Below is a short excerpt from this strategy article:
How To Analyze Stocks For Consistent Profits
The recent decline in both PepsiCo Stock and Coca Cola Stock have provided an opportunity to explain the analysis I do and the steps I take as I move into a position on one of the stocks in my watch list.These are the steps I take for Put Selling, or other options trading as well as buying shares in stocks.
Recently Coca Cola Stock has pulled back harder than usual after breaking through the Upper Bollinger Band. The drop back is strong which could mean that Coca Cola Stock will fall further than I expect. For investors who do not want to own stock you should always wait for the stock to turn and move higher before Put Selling against the stock.
In my case I would be happy to own shares of Coca Cola Stock at the put strikes I sell. Therefore I can sell during the decline against very good put premiums. These put premiums are usually better as a stock falls rather than when a stock rises. In particular, stocks like Coca Cola Stock which have low volatility levels, normally only see better put premiums when they decline such as Coca Cola Stock is presently doing.
Coca Cola Stock 3 Month Daily Chart
To understand how I look at a possible trade when a stock is falling, I thought it would be best to show the steps I go through and the charts I use to determine whether to put in place a trade or wait to enter a trade.
The first thing I do is bring up the 3 month daily chart for the stock. In the case of Coca Cola Stock I noticed immediately that there is a gap open from Jan 2. In most cases at some point gaps are filled. This could be the time when that happens and it could be as soon as Feb 15, the next day.
On December 31 Coca Cola Stock had a high of $36.28. That means the decline in Coca Cola Stock could fall to $36.28 to fill that gap and bounce from there. At the same time you can see in the chart how since Jan 2 Coca Cola Stock has moved back to $36.85 and bounced back.
Interesting from today is that the stock closed at $36.84 right back to the same support level.
IMAGE 1 - Coca Cola Stock December to February - daily chart
Before I start the trade on Coca Cola Stock I normally look at the……..
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Coca Cola Stock Internal Links
Review Coca Cola Stock 2012 Trades
Review Coca Cola Stock 2011 Trades
Review Coca Cola Stock 2010 Trades
Review Coca Cola Stock 2009 Trades
Other Coca Cola Stock Articles
Bollinger Band Strategy For Coca Cola Stock