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Change Investment Strategy

August 12, 2007

(for details pls visit www.OptionPundit.net)

Changing investment strategy according to the time is quite important. Markets are on a volatile road, value is slowly emerging and some of the stocks are much cheaper now than those were a few days ago. Old timers at OptionPundit knows that I love magic formula investing (MFI) and I keep visiting this time to time to find some good values.

Right now premium are very good, but so is the risk. IV will be reverting to mean, sooner or later and hence calendars, double diagonals and diagonals will face tough time when IV drops. High IV allows to open far out of the money credits spread and hence it may allow to open Iron Condors with good probability of success. However, that doesn’t warrant success as IC are not so flexible for adjustments should the market dive, rise frequently. So trade carefully.

While looking for the value, I went through magic formula investing screen for companies greater then 500million capital and narrowed to RAIL as one of the stock that is screaming for value. I searched more for it and found that there are many well known investors who are buying this, including one of my favourite Mr Mohnish Pabrai.

Check the screen and you will find much more (Visit Magic Formual Investing from category list on left sidebar) I am not recommending to jump the train right away but keep an eye on what’s becoming cheaper. Even if you are option trader, creating a good mix of asset allocation may prove to be a good investment strategy. You may wanna buy value, write options to collect high premiums and hedge at the same time. I am throwing a lot of ideas here, but the crux is, step back and think again what are the current market conditions and which combination of strategies is good for moving forward. Approriate allocation is going to be key.

Profitable trading, OP

One Comment

  • 3heart says:

    Hi OP,

    Looks like a good candidate for collar. I search companies for greater than 500 million captital but cannot find this one at magicformula.com. Did you find this one sometime ago?

    3heart

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