Creating a Stock Watchlist

How to create a stock watchlist is easy!

Hey I’m back what a great trip! Lets get back to the business of making money.

I received this comment when I was gone -

This is a very common question and very easy to answer but not so easy to implement.

First, yes, occasionally I will play the market and do some index spreads. The majority of the time I would place a way out of the money index spread or wait until about two weeks until expiration and place a typical out of the money credit spread. A couple of weeks ago was great because the market was so indecisive. Now that we are in a downtrend some of the volatility has escaped from the market, but index spreads can still be profitable.

As for individual stock picks, it takes time to develop a watchlist. The watchlist I have is about 4 years old and has gone through lots of development, additions, subtractions, and readditions. It comprises of strong fundamental stocks, weak fundamental stocks, strong fundamental stocks that have fallen out of favor with the Big Boys (for now), popular stocks, popular companies, etc., etc.

So what I am saying is that a watchlist can be made up of many different types of stocks and it should be made up of different stocks. The important thing is to watch these stocks everyday for a good four weeks to determine how they act. After you get a feel for what an individual stock does on a daily to weekly basis then monitor the charts of this stock and look for trading opportunities. After another 4 weeks of this it should take you about 10 secs a chart to determine if there is a likely trade there or not.

I look through my 100 stock watchlist in about 15 minutes per day and then spend another 15 to 30 mins checking the possible trades if there are any. Sometimes there are none; other times there are more than my capital will allow to trade.

So as you can see it is easy to start a watchlist but not so easy to stay dedicated to watching the list and making changes as needed to find the stocks with the best trading opportunities. I am going to change this last part and make it very easy for you to find the right opportunities - just start a watchlist and watch it. That’s it the only rule is to watch stocks, give it a couple of weeks and you will see whether a stock is valuable enough to be put on your list.

To get you started you can always check out my HOT List at my Resource Page

then add your own favorites

then add companies you are familiar with like Starbucks, McDonalds, IBM, Procter & Gamble, Ebay, any company you can think of.

Now you have a watchlist started, now watch it. Throw out the ones that don’t have good trading opportunities, throw out the ones that do not have options to trade , just watch the list and get the feel for reading charts.

Next we can talk about setting up a screener through OptionsXpress to find stocks to add to your list, or use an already setup screener from one of the subscription websites.

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Is there a bounce coming?

Hey, sorry I have been on an unannounced vacation. My office had to have some reconstruction done to it and since I was the reconstructer I had time enough to check my positions on the internet and leave. Sorry about the delay in posting. This coming week I will be at a conference, when I get back I am going to post a review of trading credit spreads and then get to the next step.

For now, the markets have dropped significantly. In the last month they have lost all the gains they have made since the 1st of the year. The NASDAQ is closing in on October levels. The DOW has found support at the 200dma. If this support holds we will see a good bounce. If the DOW drops through the 200dma and stays there I expect levels near October levels over the summer.

Because of this drop all the Bear calls are doing well. In fact, I have closed a position to regain some capital to trade again. Heres what I did…

When the MTH sold call (June $65) reached .05 I bought the call back. This locks in my profit less $5 per contract and another commission. Now why would I do this rather than waiting to gain the entire amount and not have another commission fee? To give me back the capital that the broker is holding to keep the trade open which in this case was $420 per contract. After closing the sold end of the trade the held capital is now available again for trading, which I did. I still maintain the bought $70 call because there is nothing to gain by closing that end of the trade. It will expire worthless at no more cost to me.

A couple of things can be done when a trade like MTH goes as well as it did. You can roll the trade down and sell the next level of calls; however there was not enough profit in this trade to do that. So I did the next best thing open another trade while still maintaining my capital money management rules of no more than 10 to 15% per trade. I placed the next months Bear Call on ESRX. Bear Call Spread on ESRX, July 80/85 for a .75 credit.

We can do the same for the AMD trade but realize that it does hurt our profit % more because we started out with only a .35 credit. Also because the spread is smaller, as well, only a $2.50 spread, we will only gain $215 per contract back in our trading account. Still a 13% gain is still a good gain for a months time.

Look for podcasts in the future now that my office is all set up to do them!

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Markets hit bottom?

Well it looks like the markets have found a bottom. They are currently bouncing. The S&P off of the 200dma, the NASDAQ off 2150, and the DOW a little more vague but around 11,050 to 11,100.

Will these supports hold for the long term?

I doubt it I think we are just getting a bounce and then back to the Bear trend. The reason - mid term election year with a president with bad ratings, we are going into summer, and the world is pretty pessimistic at this point with rising energy costs, war in Iraq, and tensions building in Iran. All this points to a Bear market regardless of what the economy is doing.

Also to top it off the market is very undecided and touchy basing its decisions on the next report to come out and reacting widly to it. Mostly because the Chairman of the Fed Mr. Bernanke has said that is what the Fed is going to base its determinations on - data. Interesting that the market should follow so close the advice of a total unknown with FEAR!

All this is great for options trading, we have an increase in volatility and we can make money whether the markets go up or down.

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