Stocks do not go linear – Scalp your way to make money

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Apr 13 2008
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There are many ways to skin a cat and in stocks investing or option trading, it applies perfectly. Even though it is said that the cat has nine lives I’ve pretty sure there’re more than nine ways to making money from stocks markets although by comparison I might only have 10 percent the intelligence of Albert Einstein. In stocks investing you can long or short the stocks (yeah, I know certain stone-age stock markets despise short-selling) while in option trading you can open “Call” or “Put” option positions. These are basic fundamentals 101 but there’re more methods out there.

So, you thought you can only buy stocks (or options), wait and hopefully it will goes up higher in order to reap the difference as profits. Or you thought you were wise enough to sell-short and hope for the stocks to be condemned so that you could buy back at lower price to cover your position and in the process make good money. Wrong! There’re so much more that you could do to make good pocket monies “during” the process.

Money can be made by “Scalp”

One such method is to “scalp” and make money, normally within the same trading day. The concept has been generalized. Some people believe “scalp” is associated with day-trading, made popular during U.S. dotcom glory days when highly-paid managers quit their day-jobs to day-trade at home. They made damn good money, mind you. It was easy meat during those days because the technology stocks just skyrocketed on daily basis, so much so that even a hot-dog seller could make money as day-trader.

Day trading scalp tradingAnother more precise definition was that by scalping you’re naturally buys and sells rapidly. Profits or losses could be small but the main principle is you should hold your position(s) for only a “short period” of time during the trading session. Long-term investors normally do not like such notorious way of trading because it contains the element of speculation which is true to a certain extent. Big-time speculators could drive up the stocks or options price creating an artificial demand only to sell their positions with great profits.

Stocks do not go linear

But you should know that I’m no where near those big-time speculators. As such what I did was perfectly healthy and you can try this at home *grin*. It didn’t surprise me after I received queries why I scalped AAPL May 155 Put Option when in fact I was long on AAPL May 140 Call Option prior. Well, just because I long Apple Inc.’s (Nasdaq: AAPL, stock) doesn’t mean I’m prohibited from making some pocket monies by way of “scalp” whenever the opportunity arises. Stocks do not go linearIn normal circumstances the stock does not goes up a linear line and fit the y = mx + c equation. It’s not a one way street.

In contrary, the stock could reverse its’ trend by huge quantum intraday plunges or skyrockets during its journey. You wouldn’t want to let go of such golden opportunity to scalp and make some pocket monies, would you? And that’s the reason I scalped Apple Inc.’s AAPL May 155 Put Option within the day last Friday itself. Need I tell you why Apple stock plunged last Friday? If you insist, blame it on General Electric which plunged about 13 percent dragging the Dow Jones with it by more than 250 points after its’ disappointing first-quarter earnings. General Electric which normally meets earnings target reported that profit fell 6 percent to $4.3 billion or 43 cents per share (against estimated 51 cents a share), enough to wipe out a whopping $47 billion off it’s market value *Wow!*.

Short benefits of scalping

However I agreed with some analysts that General Electric’s problems are both an isolated incident and a reflection of a break in the financial system. Hence I took the action to scalp Apple Inc. during this “hiccup” as the price, volume and other factors triggered my “Buy” (to scalp) signal. This is another way to maximize your investment while waiting for the stock to reach your target. It’s also a good way to minimize your losses should unforeseen factor kicks in, for example if suddenly Steve Jobs somehow joins the “LOST” groups in an abandoned island *grin*. By the way, there’s another way to make pocket money by writing check to yourself every month.

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