Monday, January 24, 2011

Option Mondays: Playing Momentum Names While Limiting Risk

At my core, I am a long-term value investor. I work an 8-6 job, have a family, go to school at night and honestly don’t have time to be an active trader. I enjoy doing fundamental analysis, buying undervalued dividend paying stocks and investing for the future. Obviously, this limits the universe of stocks I invest in to a handful of companies. There is nothing exciting about investing in McDonald's (MCD), Johnson & Johnson (JNJ), Coca-Cola (KO) or Procter & Gamble (PG). There is no need to check your brokerage account every day -- or even every week, for that matter. One can sleep at night confident that one's money is safe. I’ll admit it’s boring, but it’s a dependable march towards financial freedom.

As a (relatively) young investor, I have the luxury of taking risk. While the majority of my portfolio is dedicated to broad-range ETFs and long-term stable dividend growth stocks, there is always a little slice of capital allocated at chasing the momentum companies. You know the ones I’m talking about: Netflix (NFLX), NetApp (NTAP), Apple (AAPL), Chipotle (CMG), Baidu.com (BIDU), Amazon (AMZN) and the like. These are the "castle in the sky" companies, the ones that jump 10 to 20 points depending on the mood of the market, where investors buy high and hope to sell higher.

Read the rest of the article at Seeking Alpha

1 comment:

  1. Options still scare me maybe thats just because I do not understand them very well.

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