Making TSM Trades - Don Y.

Ric,

Do you have any reading material or suggested reading on how to tell when to take profit on a stock trade? For instance, I took profit with DIS after only gaining $.70 on the same day of purchase, fearing it would not go further with all the bad news out there or that something drastic would happen overnight. How did you decide to sell at the price that you chose? Even if I watch the market every minute, I don't know how my performance can come even close to your theoretical one if I don't sell at something close to your sell signals right? Please advise.

Thanks,

Don
_________________

Don,

As I point out in the TSM daily report, the TSM trades are not necessarily actual trades.
Instead they are possible trades for the forecast stock. Typically, soon after I buy a
position, I put in half position sell points for profit: the first one near the low side of the
profit range and the second above that near prior resistance if possible. Seventy cents was
below the profit range but still a nice intraday gain.

I too was expecting poorer performance last week so I held my contra etfs which lost money.
Most often, the market will do exactly what most expect it not to.


Ric

New to Selling Puts But Made Money - Betsy B.

Hi Ric . . . I am preparing to leave the country and will not be trading while I am away, so I would like to cancel my account.

I wanted to thank you for your awesome service. I really appreciate everything I’ve learned from you and the money you made me. I was a little slow to sell naked puts, but once I did I was hooked. When I come back in six months, I hope you’ll let me back into your “club”. I also appreciate how responsive you were to all of my questions. Your knowledge is vast and it is apparent you are quite a talent.

Thanks again,

Betsy B.

Better Understanding the TSM Strategy -- Jerry F.

Ric,

After some hit and miss observations from your site and maybe not enough understanding of your program I believe I will start selling puts this Monday starting with GMRC. My first trade way back then was selling some BP puts and I did very well.

What would be a good starting point to gain a better understanding of your the TSM strategy. I believe I learned more by reading and attempting to understand it simply by going over your "COMMENTS"section. It's an education by itself.

Thanks,

Jerry F.
____________________

Jerry,

The triple screen approach is not difficult to understand. It's simply an approach to buying fundamentally
sound stocks that still have value left in their price.

I run ~30 screens on Sunday (IBD, Zacks, Vector Vest, Value Line, TheStreet.com, Morningstar, Forbes,

etc) that are fundamentals based and require multiple screen membership to narrow this list from

~10,000 stocks to about ~1,000. I then use the next 2-year PEG ratio to qualify value and that takes the

list to ~300, then price and volume criteria to reduce that list further to ~200. This final list is the best of the

best, those stocks that institutions want to hold. During the next week, this list is the only set of stocks
that I trade that week.

Having cleared these stocks for their fundamentals, during the week I look for their pullback to major levels

of support (20-/50-day moving averages, prior highs or lows) where I can buy. Statistically (and I'm

a professional statistician), buying stocks in pullback is far more profitable (and less risky) than buying

stocks breaking out. .

Each of these buy recommendations comes with suggested profit targets and set in stone stop losses based

on half-position sizes. My goal is to make at least one recommendation in each daily report.

That's the heart of the program. It's simple and profitable. Note, the statistics I present are based on optimal

outcomes from these TSM forecast trades, not necessarily actual trades, though I do make many of them. Your

results won't be quite as good, but the system consistently turns out +70% winners (+90% for the past two

quarters).

In addition to the above, I also recommend a short-Put strategy for these stocks as a strategy to invest cash

at ~18% targeted return. Of the 100s of Puts available for TSM stocks, only a few make the TSM criteria

(>18% annualized return with from 5-15% downside risk protection). Possible trades are provided in the TSM

daily report, while my actual trades are reported intraday through a protected Twitter account. I would recommend

you read the free reports linked from the site that goes deeper into the short-Put strategy if you're interested..

Ric Miller, Ph.D.

6-Sigma, Master Black Belt

How does TSM choose its Puts recommendations? Don Y.

Hi Ric,

I just looked at your latest tweets and every time you give a reco, I check out the price and the chart on the option. And every time I can't help but wish that you gave it a day or 2 in advance when it's usually 50-100% higher. I'm sure it is related to risk vs. price movements etc. Can you let me know why you would not sell Deck's puts for example last thursday or friday for a much higher price? Or use any other as an example if you like.

Much appreciated.

Don

......................................................

Don,

I try to find the TSM stocks offering a good combination of risk and premium. Too, I prefer to forecast Puts offering more than $1 in premium. As time to expire nears, I accept less downside protection, i.e., last week my limit was 7.5%; this week it's 5% (for the Jan expiration in 12 days). So an option's premium has to return >18% annualized and, at the same time offer the required downside protection.

DECK is trading in an area of prior support (in early Dec), but it also is trading between its falling 20-day moving average and its rising 50-day moving average. I wasn't happy with the risk situation last week, but am this week.

Given the TSM list of 200+ stocks, there's usually a small list (10 or fewer) that offer Puts meeting my requirement. I could relax the criteria, but that would increase risk markedly, especially if the market was choppy.

Ric Miller, Ph.D.
6-Sigma, Master Black Belt

TripleScreenMethod's Approach

Subject: TripleScreenMethod Subscription Information

The TripleScreenMethod.com homepage highlights the forecast record over the past 28 quarters, as well as provides sample page information. Essentially, for $25 monthly, TSM provides the following:

1. Monday--a weekly list comprised of stocks that show up on at least two of 28 fundamental screens and a value analysis based on the next two years of PEG ratios (usually from 50 to 250 stocks);

2. Mon-Fri--nightly, at least one (usually more but sometimes less as the market dictates) TSM pick off the above list that is in pullback and ready to rebound higher with both profit and a stop loss exit criteria (75%+ winners over past 14 quarters - 86 Wins & 10 Losses for 114.81 points in current quarter -- 4th quarter, 2010);

3. Mon-Fri.--nightly, a list of potential naked Put options for the a TSM stocks aimed at providing income (>18% annualized yield) with10% dowside protection; 159 Wins & 28 Losses in forecast positions for $44,914 in premium; actual trades are forecast during the day through Twitter (twitter.com/TSM_rm);

4. Various articles detailing strategies for day trading, for deploying money at higher rates of return and for the performance of technical indicators as they relate to fundamentally sound stocks. (see articles at http://www.tradingmarkets.com/.site/stocks/contributors/?contributor=Richard%20Miller)

5. A resource who actively trades the above strategies whom you can question (specific to TSM or more general).

Ric Miller, Ph.D.
6-Sigma, Master Black Belt

Questions about the TSM Methodology ..... Dalton B.

Hi Ric,
Is there somewhere else on the TSM site I’ve missed that explains in complete details the TSM approach? I think I’ve read everything I’ve found on the website but am still not clear on how you structure the half positions & when they are sold. I’m obviously talking here about the Stock of the Day portion.

Thanks,

Dalton B

_______________

Dalton,

Details of the TSM approach:

TSM stocks are identified as those that: (1) hold membership in at least two of my 28 fundamental's based screens; (2) averaged trading at least 150k shares daily over the past 20 trading days; (3) closed above $10; (4) have two year PEG ratios less than 1.50; (5) hold a current Zacks ranking of less than 3, but if 3 have a market cap >$25 billion. I generate this screen each Sunday and use it for the next week.

Each evening, I look for at least one of these TSM stocks that has pulled back to a major level of support (20-, 50- or 200-day moving average or prior low or prior high) to forcast a long trade for the next day. I usually suggest a price that one buys below, but if the market is very bullish I could suggest a price to buy above. Sometimes I'll suggest both type entries for a position, and one could buy half a position utilizing each or buy a full position utilizing the first entry criteria that hits.

I then specify stop loss targets for half positions. When these are hit, I sell each half position at a loss. This methodology has produced ~70% winners, but when a loss occurs, the key is to keep it small (~30% of the time, this will happen).

As to taking profit, I suggest a price range where one should sell. I typically sell half the position near the lower half of the range and the second half at a higher price. I continue to hold or sell based on what I see the market doing. I guarantee that my sell price will fall within this range, but I cannot tell you exactly where as I make my own decision while the market is open.

Having said all that, I feel it's my job (1) to identify quality stocks with value left that are ready to be traded and (2) to identify (in stone) stop loss points. It's up to you to identify where to take profits. This methodology has produced ~70% winners through good times and bad. For $25 monthly (and ~20 picks), I don't think you could ask more.

Additionally, most evenings I'll scan all the current TSM stock's option positions and identify those Puts that offer premium that equates to an 18% or better annualized return with some degree of downside protection (5-15%).

Hope this helps,

ric

Writing TSM Put Options: Why Choose Front Month?

Don Y. asks on 12/31/10

Hi Ric,

I am new at writing Puts. I have a concept of how options work, but am no expert at all. That's why I really want to ask you something that I find perplexing. I'm sure you have a good explanation.

For example, on SWKS's Put that you recommended on twitter lately, why not sell it back in Nov when it was above $2? On the surface, that looks like it offers better protection against losses and would be more profitable, but I'd like to hear your reason for selling it at the time you recomended it, since the pattern seems to be consistent in all your options recomendations. Thanks.

Regards,

Don

____________________

Don,

I haven't recommended SWKS for a TSM trade. So far as TSM Puts go, I present two types of information on twitter:

(1) actual trades that I've made, which are labeled by a Trade #, and (2) possible TSM trades that meet our trading

criteria. The latter is how I presented SWKS. I only track the first type trades at the TSM website.

As to actual Put trade characteristics with respect to time and % downside protection, those choices are made based

on an annual return criteria (>18%) and % downside protection (from 5-15% depending on time to expiration.

Your question is: Why not go further out and collect a bigger premium?

Let me answer that with a hypothetical position: $50 stock with 40% implied volatility, 1% interest rate and no dividend (all these impact the level of premium according to the Black-Scholes equation). The immediate calculated Put premium for a $45 strike is just a function of time to expiration, e.g., for 10 contracts, assuming that price doesn't change, then

....($50 strike price and $45 Put)

150 days = $2,675 30 day delta $445

120 days = $2,230.....".............$495

90 days =...$1,735.....".............$565

60 days =...$1,170.....".............$650

30 days =...$520........".............$520

Every option experiences its greatest loss of value percentage wise in its last 30 days (100% loss) versus

any other 30 day period, e.g., from 90 to 60 days, the above option would have lost 32.6% of its value.

I choose ~30 days expiration (front month) to maximize the time decay and, at the same time, reduce risk.

Having made the above argument, I could choose a longer expiration--as you indicated--for a larger premium

with an aim to close that position after 30 days, for example, if the above stock remained at $50, one would

have made more money by selling the 60 day Put then closing it at 30 days ($650 vs $520). That's true, but the

risk situation is much worse. Remember I want to protect the downside.

Say during the 30 days, the stock drops in value to $45 (the Put's strike price), and I close the position. Here's

what my profit situation would look like for the various Puts:

($45 stock price and $45 Put after holding position for 30 days)

150 day Put at 120 days $4,028 loses -$1,353

120 day Put at 90 days $3,500 loses -$1,270

90 day Put at 60 days $2,869 loses -$1,134

60 day Put at 30 days $2,038 loses -$865

30 day Put at 0 days $0 gains +$520

I choose the front month to minimize risk. The TSM stocks are fundamentally

sound with value left in their price. Most will experience a rapid price rise

(~70%) and I'll close the Put position early (usually when 75% of the premium has been

captured, and there's more than 2 weeks before expiration) to capture more premium

in another stock for those 2 weeks. The above Put strategy protects me in those 30%

where I'm wrong and price drops. Note, before I exit a Put position, I calculate the

return that's left given the premium drop. If it's greater than 18% annualized, I continue to

hold the position.

Hope this helps,

Ric Miller, Ph.D.
6-Sigma, Master Black Belt