If we get a 2B reversal on QQQ today I’ll be adding to my shorts in that market. Of course, this is in addition to my COT shorts. I like 2B’s because they allow me to use close stops and when I hit them right, they can be very profitable, very fast. However, if having a high percentage of winners rather than just making money is important to you, stay away from 2B’s. Many times you have to try more than once before you catch a profitable reversal.

Larry

Larry your SMR is great! This was my first week trading, and yet I made over 10% return on my total equity (over 30% on the stocks I was trading). Much of it was luck, but your report helped a bit too.

1. What online brokerage do you use to trade online?
2. What is a Parabolic SAR stop?
3. Can you break down how I can do a single options trade on a stock that I think is going to go down?(I learn best by doing)
4. I understand the basic idea behind trading the QQQ (I think it's to buy at support and sell at resistance), but does one use limit orders to buy, and stop oreders to sell? Or do you use options for the QQQ? What are the types of trades, and what price do you type in (please give an example).

thanks,
Tony

Tony,

What online brokerage do you use to trade online?

Mostly Brown and Company.

What is a Parabolic SAR stop?

Here is a link that explains it. When I use it I only use it as a convenient, mechanical way to set a trailing stop. I never use it to enter a position. I only use it to exit a position.

Can you break down how I can do a single options trade on a stock that I think is going to go down?(I learn best by doing)

The most basic way to use options to profit from a stock that you think is going down is to buy puts. Beyond that, your question is far to general for me to be able to answer within the confines of a message board. I appreciate the fact that we ultimately learn by doing, but as I’ve stated many times options are very sophisticated financial instruments. You better know what you’re doing before you commit real money to them. Start off by going to the CBOE Learning Center. And then when you have very specific questions on what you have learned, post them here and they will be answered.

I understand the basic idea behind trading the QQQ (I think it's to buy at support and sell at resistance), but does one use limit orders to buy, and stop orders to sell?

With the QQQ I almost always use market order to enter a position. And, yes, if it’s a trade rather than a position that I took as a result of a Commitments of Traders signal, I’ll always protect myself with a stop loss order. Whether I actually exit on the stop order depends on the situation. If I think that it has entered an area of resistance (for long positions) or support (for short positions), I may just get out at the market.

Or do you use options for the QQQ? What are the types of trades, and what price do you type in (please give an example).

I sometimes use options depending on the situation. I like to use the analogy of a professional golfer. A golfer chooses the club out or his or her bag depending on the situation. That’s the way I view options. It is simply a tool that I use when I think the situation calls for it. When you learn about options you will come to realize that they can be used in many different ways – buying puts, buying calls, LEAPS, straddles, writing calls, writing puts, bull spreads, bear spreads, butterflies, ratios, and I could go on and on.

I’m not sure what you’re asking with your question about “what price do you type in?” I need further clarification on that one.

Tony, keep reading the Smart Money Report. Make sure you spend some time in the archives. Also, Here is a suggested reading list that I posted a while back.

Larry

"That’s the way I view options. It is simply a tool that I use when I think the situation calls for it."

I've heard you say this a few times. Could you explain what "situations", in general, call for purchasing options as opposed to buying/selling the underlying stock or any other "tool?"

Brett,

There are a few examples that I can think of off the top of my head. If you're talking about simply buying puts and calls, I will sometimes choose options over the underlying stock when options are cheap as measured by low implied volatility. I also may choose options when I am expecting a big move in a short period of time. When shorting stocks I will sometimes choose puts over the underlying stock when I'm shorting a stock that has a history of big gap openings - a biochemical stock for example. There can be other reasons, but those are some that I can think of right now.

And then when you get into writing options that's a whole different story. For example, I write calls against long positions when I think we're entering a period of consolidation and I want to protect my profits, pick up extra income, and reduce my cost basis.

Once you really learn about options you'll realize that the possibilities are endless.

Larry