The S&P500 (SPY) had a solid finish to 2021. It rallied on Monday into all-time highs and set the highest point on Thursday, 30 Dec 21. On Monday, 3 Jan 22, the market opened positively, ending the day higher and within 1 point of yet another record.
The cheerful open to the year indicates no re-test of the newfound support (former resistance) around the 471 area. Instead, everything points to the trend resuming to the upside into uncharted territory. It looks like it will take much more than the Fed printing money, another pandemic, or a new crisis. Markets seem unstoppable.
Many new investors are afraid of jumping in at the wrong time, which is understandable. However, the markets are breaking record after record and showing no signs of slowing down.
What to do next?
There are many ways to skin a cat. It’s just a saying people. It’s not literally. However, we are never short of strategies and possibilities as traders and investors.
A. Test the Waters
If you are brand new to investing, I suggest NOT jumping with both feet. Test the waters first. The idea here is to invest half of what you have available. There are two reasons for that:
1. By investing in small portions, you are not risking all of your capital, but at the same time, if the markets keep pushing higher, you are participating and adding gains to your portfolio.
2. With the same token of investing small portions, if the market decides to pull back and take a breather, you will have capital free to be deployed as you wish and at a discount. Who doesn’t like discounts? I do!
B. Learn to Sell
A strategy I use is selling options. I like to sell options on volatile stocks and also on support areas. In my case, the idea is NOT to get assigned the shares. Instead, collect premiums with each sell, rinse and repeat.
If you want to own shares on a specific stock, you sell the options at the price you are comfortable buying it. Keep in mind that each contract holds 100 shares when you sell options.
For example, You don’t mind owning AT&T (T) shares at a $20 strike price. Therefore, you will sell the $20 put option.
1. Next, multiply the strike price by 100 shares, which will give you the amount needed in cash. To sell this put option, you need to have in your account $2,000 available (not invested) per each contract you plan on selling. This cash will be used as collateral if you get assigned, and this will be the money used to buy those shares. The same thing happens with each option you sell regardless of the stock.
2. Once the money is available and ready to go, one of these two possibilities will occur:
– The stock price falls under the option strike price, and you get assigned those shares. In this case, you will buy 100 shares at $20.
– The stock price remains above the option strike price, and the option expires worthless. Therefore, you keep the premium while releasing the cash held as collateral.
Keep in mind this is an investing mindset. We are not here to jump in and out daily or intra-day. If that is your mindset, you are a trader and not an investor.
As a trader, you need momentum. So I don’t recommend any newbie to trade first. Instead, start with the basic easy steps of investing, then move up the latter.
If you are a little more experience, then look for weekly breakouts. For example, during the weekend, change the setting on your chart to weekly. Then, set an alert at the high of the week that just closed. If you are doing it during the week, ensure to set the alert at the high of last week.
Once the alert goes off that a break out of that high occurred, you can take a position with shares, you can sell puts, or you can buy calls. The choice is yours.
Ensure to preset your stop-loss price (area) and your targets.
Are you going to sell all of it once you hit an area?
Are you selling half and riding the other half for more profits?
You can also sell 1/3 of the position at target #1 (T1), sell another 1/3 at a higher target #2 (T2), and let the last 1/3 ride as high as possible for maximum profits.
As I said, there are many ways to skin a cat. First, you need to figure out which strategy makes more sense. Not all methods work for everyone. Please choose the one you like most and become a master at it. Once you become a master, you start adding to your toolbox with new strategies in a few years. Join groups and share your experiences. Also, listen to others and learn from their mistakes.
Now, begin your Road to Wealth!
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