[xi] Lesson 5: stock pick: ETF, stock or basic call option (step 2)

In the previous lesson, we discussed:-

Step 1 – screen for uptrending stocks that meet basic fundamentals

Please refer to Table 2 from Lesson 4. This will be our watchlist.

In this lesson, we will discuss:-

Step 2 – analyze the watch list to qualify for options trading

From Table 2 in Lesson 4, we can check out a few things, namely:-

1. Is there another way to determine these are fundamentally strong companies? Yes, we can use MSN stock scouter to double confirm (see Table 3 below).
2. How to check the option qualifying criteria, especially the open interest,
3. How do we know the chart is technically beautiful?

Note: for more information on qualifying option criteria, check out the explanations in Lesson 1 and also the glossary (click this link to go to glossary: http://trendtrader-kk.blogspot.com/2011/08/summary-of-us-stock-options-glossary.html)

Table 3 (further analysis of watchlist)

No.	Ticker	Company	MSN scouter	option	technical
1	ABX	Barrick Gold Corporation		option	side trend
2	AUY	Yamana Gold, Inc.		option	uptrend
3	EGO	Eldorado Gold Corp.		option	side trend break
4	GFI	Gold Fields Ltd.		option	side trend
5	GG	Goldcorp Inc.		option	uptrend
6	KGC	Kinross Gold Corporation		option	side trend
7	SLW	Silver Wheaton Corp.		option	uptrend rebound
8	KO	The Coca-Cola Company	9	option	uptrend
9	PM	Philip Morris International, Inc.	8	option	uptrend
10	UN	Unilever NV		O.I?	uptrend
11	AGNC	American Capital Agency Corp.	9	option	uptrend
12	NLY	Annaly Capital Management, Inc.	9	option	double top
13	BMY	Bristol-Myers Squibb Company	8	option	uptrend
14	MCD	McDonald's Corp.	9	option	uptrend
15	TJX	The TJX Companies, Inc.	7	option	uptrend rebound
16	V	Visa, Inc.	7	option	uptrend rebound
17	CNP	CenterPoint Energy, Inc.	9	option	uptrend rebound
18	EXC	Exelon Corp.	9	option	uptrend channel
19	NI	NiSource Inc.	9	O.I?	uptrend rebound
20	SO	Southern Company	7	option	double top

MSN scouter

The figures in the MSN scouter column of Table 3 above are extracted from msn.com.

(http://investing.money.msn.com/investments/stock-price?symbol=MSFT)

Example of  MSN scouter ........

 

According to msn MONEY, good stocks are those that score 8 and above. However, not all stocks with numbers bigger than 8 have good charts. For instance, Microsoft has a scouter number of 10 but the chart is not trending up nicely enough.

Chart of MSFT (Microsoft) downloaded from freestockcharts.com

You may review the charts of all the stocks in the watchlist to check out the pattern of the charts. Technical analysis is very useful to ascertain the current trend of the stock.

Option criteria

Adequate Open Interest is the most important of all criteria. There must be demand for the call option you intend to invest. You may get such data from Thinkorswim platform. If you have not registered and downloaded TOS yet, you may still obtain the data from MSN.com MONEY.

http://moneycentral.msn.com/investor/options/default.asp?symbol=EXC&month=1&year=2012

(Open interest should be at least over 300 contracts)

News support

Although good traders seldom make buying decisions base on news, it is alright to read some of them sometimes. For example,

http://seekingalpha.com/article/289094-utilities-are-beating-the-s-p-plus-doubling-its-yield?source=msn

Utilities Are Beating The S&P, Plus Doubling Its Yield

This story appeared in the above site on 22 August 2011. It named 7 energy utilities stocks (AEP, D, DUK, ED, EXC, FE, SO) within the S&P500 that have good yield.

3 out of the 7 have good msn scouter numbers.

ticker	msn scouter	Chart pattern
AEP	9	double top
D	9	up trend channel
DUK	9	up trend rebound

Another 2, EXC and SO, are already in our watchlist.

As such, you may also consider buying the related ETF or their call option.

XLE	Select Sector SPDR Energy
XLU	Select Sector SPDR Utilities

 Likewise, the watchlist has a few gold related stocks. So you may also consider buying gold shares! 

GLD	SPDR Gold
IAU	iShares Gold

Post comments or ask questions and let’s learn together. Sign up to follow my blog. Thanks for visit.

GOTO NEXT LESSON:-

Lesson 6
Learning technical indicators and chart patterns can help to find the right stock to invest.

http://trendtrader-kk.blogspot.com/2011/09/91-lesson-6-stock-pick-etf-stock-or.html

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