By: Guy Gentile
It was 1997, and I had just opened a new bank account at Citibank, which at that time was one of the few banks that offered investment services and online trading. I was working for Coca-Cola at the time, so naturally my first purchase was in Coca-Cola, symbol: KO. I didn’t intend to day trade my account; in fact, I didn’t even know what day trading was. But I did notice my account value would fluctuate as the stock price moved and that KO was trading in a range. It would go from the low 50’s to the high 50’s and back again. So I decided the next time it went to the high 50’s, I would sell it and buy it back in the low 50’s. That’s how I discovered day trading.
After a few months of success, I made the biggest mistake any trader could make. I became too confident and bet the farm. I bought shares in YHOO fully margined at around $30 and watched the stock tank to the teens. I lost it all in one trade. If I hadn’t margined YHOO at that time and instead had held it into the internet bubble, it could have been worth millions.
I didn’t give up on trading, but I was out of the game for a little while. I decided to do some homework and read a few books on trading. I focused on option trading and market patterns.
After my search was done, I discovered a market pattern in tech stocks that were splitting 3-to-1 or 4-to-1. They would rally right after the split. So using the option trading knowledge I gained from my research, I made a plan.
I looked for tech stocks that were big movers and were about to have a 3-to-1 or 4-to-1 split. I came across Compaq Computer, symbol; CPQ. I bought around $15,000 worth of call options near the money. The stock split 3-to-1 and rallied strongly. I sold for around a $30,000 gain. I was so excited; I was hooked on trading for life. Fast forward 13 years: I have built very successful proprietary trading systems that are in use today by manual traders and high-frequency black boxes.
What I learned early on in my career as a trader is that you need to pick a trading style that fits your personality, and you need to learn from experts in that strategy.
Note: Market patterns do not last long. This pattern worked for me in 1997, but I would not expect it to work now.
Options involve specific risks and complexities, and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options. Uncovered options carry special risks and uncovered option writers must also read the Statement for Uncovered Option Writers
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