Avoid Put Selling Disaster With The SQUEEZE

Visa stock as readers know has been in my portfolio for years. The stock has now tripled in value from its original IPO price back in 2007.

I have traded VISA Stock through Put Selling since 2009. I have done covered calls on the original stock I bought in 2007 and against additional shares I purchased in the bear market crash of 2008 to 2009. Recently I sold the Dec 22 $150 covered calls and I will let my stock be exercised at that call strike if Visa Stock closed at or above $150 on Dec 22.

Visa Stock has had a terrific run up. Just this year alone it is up from a low of $98.33 to $150.72 for a gain of 53%. What an incredible stock it has been. But as a Put Selling investor I too have enjoyed the rise in Visa Stock because it has made my investing method of put selling so much easier. Put Selling against a rising stock has to be one of the best strategies available and it is dead simple. Every little dip is a Put Selling opportunity in a rising stock and while the profits are not as great as holding the stock, the profits nonetheless are excellent and certainly can be in the high double digits.

But Eventually The Trend Up Will End

But eventually that trend up will end. Just as investors in Apple Stock are finding out, rising trends can end quickly and severely. Investors get caught all the time in a stock that is flying high and then suddenly heads south. Big cap stocks like Apple stock when they fall are pinpointed by analysts who tell investors what a great buy they are as they continue to plunge. The lower they fall, the better a buy they are, according to analysts. Remember Research In Motion stock? RIM stock was a buy from $140 all the way down to $30.00 by analysts. The faster and farther the stock fell the more analysts wrote about how great it was and the enormous profit investors would make on the recovery. Finally at $30 they threw in the towel.

When a stock falls you are fighting downward momentum each time you contemplate buying the declining stock or Put Selling the declining stock. You have to decide if you truly like the stock. For example in late September Intel Stock began a decline from $28 down to $19.25. This plunge of over 30% tests the nerves of investors. I started Put Selling at the $26 put strike and have naked puts all the way out to $15.00 on the stock. I like Intel stock and believe it is undervalued. I could easily be wrong and if Intel Stock disappeared it would wipe out 50% of this year’s profits. It’s a choice investors have to make on any declining stock.

Enter The SQUEEZE

There are a number of excellent technical tools that can advise investors when to get into a stock and when to stay away from a stock. One of the best has to be the Bollinger Bands Squeeze. The Bollinger Bands were invested by John Bollinger in the mid 1980’s and the term itself was trademarked by him in 2011. Since their introduction I have used the Bollinger Bands Squeeze to protect my portfolio. It is an excellent early warning signal. As well the Bollinger Bands Squeeze has assisted me in established a simple method for knowing when to enter a stock and how to aim for the very best put premiums available when Put Selling.

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