by Jack Tenney, Publisher
Confessions of a lay trader.
Here’s the deal. Years ago, I found a way into Fenway Park during a Red Sox winning streak for a maximum payout of a buck — one dollar. Inflation has had its way and the Sox have improved their stats, and now it easily costs $100 to catch an exhibition game. So now I have found a way to not only get into the sold-out game, but to make 10 bucks doing it.
Rather than bore you with documentation of my boastful claim, I make the following key point: Lots of really good deals are not scaleable. Because that is the truth — that it is actually possible to make money as a lay trader. Maybe day traders can make money, too, but they need a lot more money.
Just as I can’t start hiring buses to take lots of people to the ballpark with me, there are pieces and parts of stock market strategies that are denied to day traders, hedge funds, pension funds, mutual funds, and large investors but wide open to lay traders.
A lay trader is a nonprofessional investor interested in trying to make a little more money with a little money.
For instance, 900-pound gorillas cannot trade in the financial markets because they are too big. Their buy orders drive prices up and their sell orders drive prices down. However, there are some strategies that work remarkably well for gnat-sized speculators. Even swarms of them cannot move the markets.
What I try to look for are companies with good underlying fundamentals that are heavily traded, followed by lots of analysts, and with a fair amount of volatility. I prefer non-dividend payers. Once I have found a good prospect, I sell a couple of out-of-the money put options on it. If I have done a reasonably good job of research, I get to pocket a few hundred bucks as the stock price increases. In the odd case where the price falls and I am forced to buy the stock, I’m willing to own it in my buy-and-hold stack, at a discount plus premium, to the price I would have had to buy it back when I decided it would go up.
Or I could just buy back options and take my loss.
You probably are more interested in how I get into the ball park.
Sorry, trade secret.