Great Recession Best Experience

With $3,000 as my initial investment I’ve have been able to explore a variety of investment instruments. From trading stock options and selling covered calls, to investing in equities and trading currencies; I have experienced gains and losses both big and small. I have definitely learned a lot; from February 2008 to October 2008 I was managing the same $3,000.

I first started opening positions with stock options. Since I had recently learned about options, I wanted to try that first. Positions were opened based on volatility; having wide swings so the options would have a higher probability of being ‘in the money’. After talking to my college professor, who also invested, I stared opening positions ‘deep in the money’ options. Buy deep in the money so that the breakeven cost is lower that way the underlying stock doesn’t have to move up as much to breakeven versus an ‘out of money’ option.

However, selling a put or call can lower also lower your cost. I messed up by not being patient because as soon as I would close the position the stock would move in my favor. Also, I had an unrealized gain little over $200. Take it especially during this time because the financial crisis was beginning and words of bear and recession were spoken of . I should also spend more time analyzing and don’t act on impulse before I open a position. When earnings report are going well, use call options vice versa use puts options to exploit price movement.

Writing calls are fun, I started out selling calls the month of which may yield a lower premium because time value is lower. Instead sell at least a month ahead. Covered calls, develops cash flow and increases my income. My first mistake selling calls was selling at a strike price lower than the current market value all because the premium was higher.

After stock options, I moved to stocks. I did well except for executing an exit strategy. When I have my required rate of return, I should at least take out my initial investment or if the stock goes below a predetermined percentage regardless of situation sell stock. Focus and pay attention to the market and trends. Are companies missing estimates and expectations in consecutive quarters? Are companies lowering their guidance? Protect yourself by selling ahead of earnings or buy put options.

By July 2008, I was reading and learning about the foreign exchange market. By the first of week of September, not only did I make back my initial $3,000 I made my required rate of return plus some. The profitability in FOREX market is far greater than stocks. In fact, stocks have gotten a little less attractive. Comparing stocks and currency, FOREX doesn’t have commission fees, FOREX offers leverage (which can be deadly).

My first mistake was getting caught up in the minute by minute and hourly movements. I would end up losing money; instead I should focus on the daily movements and TRUST my technical studies. Currency movements are fickle; be patient and look at the broader picture. My two biggest mistakes are not trusting my technical studies and using too much leverage. Using too much leverage can offer gains or losses. If the technical studies are right and if I’m comfortable, use big amount of leverage weekly; and by the end of the week liquidate position to avoid over the weekend price movements. Make sure you are well capitalized. Using a low amount of leverage can be used for medium to long term trading time horizions. Also, check technical studies (MACD & DMI) daily. Especially, in DMI the ADX is above 30 and DMI(-) and DMI(+) are beginning to intersect to extreme opposities.

I would like to reflect on my full fledge investing year. Up until this point, I have mostly read about stocks learning about them learning how to pick them trying to develop a strategy. I have done research using Valueline, Barrons, USAToday.com, Sharebuilder.com. Additionally reading financial statements, chart analysis, and fundamental analysis. I also stay constantly tuned to CNBC and Bloomberg. I made it my personal goal to own shares of stock by age 21 (2006). I bought the shares I believe by using my tax refund.

In 2008, a great year for opportunities investing, the financial crisis was epidemic; it infected the whole market. Gas reached an all-time high, gold reached over $1,000, the dollar had strengthened by year-end, and stocks made new lows and little to none new highs. To profit form these opportunities, starting with gold near the beginning of the year because of inflation worries investing in (GLD) had potential. Before GLD stared to decline I could have taken advantage of crude oil and the financial crisis. Oil reached $147 by July, I could have looked into opportunities like HES, XLE, DIG, CVX all were high priced (a criteria of stock screening) and oil was talked about greatly (another criteria) in 2008. However, by end of November 2008 the price of crude oil had broken below $50 approximately 66% decline from its July high.

Therefore, in this opportunity, you had to be nimble! Afterwards, I took advantage of the strong dollar; I could have better manage the leverage and money. However, opportunity was ample for the dollar. Major stock indices like S&P made new lows, you could be short the S&P 500 using (SDS) you could take advantage of financial crisis and housing bust using SKF and SRS respectively. All these opportunities had been topics of discussion and all had their particular spot in the year. And all stocks and ETFs mentioned were priced above $50 some even triple digits – $100, $200, $300.

By November 2008, it was officially declared that the economy was in a recession since December 2007, already a year into it. Global recessions were happening political figures from all over meet several times to discuss solutions to the credit crunch. Central banks aggressively cut rates, some financial firms failed some were taken over, bailout plans were passed and enacted.