A Tale of Two Traders (continued)
Merritt's Moves
At the Bell: Merritt reviews his portfolio to see how the six stocks he owns are faring and checks the stop-loss and trailing-stop orders he has in place. Nothing demands attention, so he opens Minyanville's Buzz & Banter™ (on the "Ideas" page under Research & Ideas) to find more trading ideas. He notices commentary on a stock he owns, Manet Pharmaceuticals (MNTP), which announced that the Food and Drug Administration's approval of MNTP's new drug will take three months longer than anticipated. The analysis suggests that the $35 stock will continue to move sideways for the next few months. Merritt sells five MNTP December $35 strike price calls for $2 per contract, which results in a credit of $1,000 deposited in his account, less applicable commissions and contract fees. (Selling covered calls limits upside potential: If the stock appreciates above the option's strike price, the stock may get called away via assignment.)
Noon: While he's out, a courtesy email is delivered to his in box. His buy-limit order for ZXCF at $27 was filled, and his trailing sell stop order was triggered on the same position.
Afternoon: Merritt checks his equity positions. Two of his technology stocks have moved sharply higher. While his long-term outlook for both is bullish, he believes the stocks will move in a sideways range for now. He writes covered-call options on these positions as well. They'll provide some income, and if, as he expects, neither stock rises further in the short term, he will also be able to keep his shares. But he understands the risk that if the stocks move higher, he may not participate in the appreciation and could end up selling his shares if assigned on the short calls.
Grant's Moves
Early Morning: Mike Grant reviews his market positions over breakfast. Because he often has several positions in a single stock — owning not only the shares but also put and call options — he launches
Grant pays close attention to the
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A trailing stop order will not guarantee an execution at or near the activated trailing stop price. Once activated, they compete with other incoming market orders.