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Posts Tagged ‘market declines’

Buying Stocks on Sale

Yesterday, the stock market dropped the most since November 2011.  So, what was your take?  Did it bother you that the value of your stocks dropped significantly or did you consider it an opportunity to buy stocks on sale?  Matt makes a great contrast between the attitude of declining prices when it comes to stocks versus the response to declining prices with gasoline.

I look at the fact that my investment horizon is over 25 years.  I figure that trying to pick up some shares on a down day is better for me in the long run.  I bought several shares of STX last week for $25.82 on average when it was down over 8% in a day due to some poor guidance.  I figured that the stock pays a dividend which should help create a floor under any sort of decline.  I also figured that I could always sell some covered calls to decrease my basis if need be.

Yesterday Bought More AKS

Yesterday, I was able to purchase another 100 shares of AK Steel for $6.95.  The plan is to sell some covered calls with the $7 strike and a May expiration.  I put in the order today to do so at $0.65 per share.  It hasn’t sold, but I wouldn’t be surprised if it did over the next two days before the weekend.

If it doesn’t happen and the stock ends up dropping again, I can pick up some more shares below $7.  It is not a big deal and will lower the overall basis of the stock.  The biggest risk is that AKS has financial difficulties and stops paying a dividend or even goes bankrupt.  I don’t think that will happen over the next few months, but I do have to consider that if I increase my position too much, I will want to buy some protective puts.

I had some put options when my position was bigger.  They paid off for me as the stock slid from the teens down into single digits.  But now my overall exposure hasn’t been that large so I let the puts fall by the wayside.  I figured I would save the cost and simply work with selling calls.  However, it may be worth reconsidering if I want to purchase more shares over the next few days.

The other consideration is the fact that earnings will be coming out later this month.  That can always be a big trigger for volatility and moves one way or the other.  A big move down is bad and could hurt.  The May $6 strike puts cost $0.15 each.  It is probably worth it to buy some tomorrow and prepare to sell some calls as well.

Overall, the market has made a decent run over the past few months.  I am not surprised that it is time for a breather.  Summer is coming and earnings season is expected to be disappointing.  Even though yesterday was a big down day and today saw a bit of a rebound, I would probably use the down days to add to positions but only a little bit at a time.  That is what I will be doing.

So, are you buying any stocks?

 

 

 

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14 comments - What do you think?  Posted by Cash Flow Mantra - April 11, 2012 at 5:58 pm

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