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Consolidate Stock Gains

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Consolidate Stock Gains

Consolidating stock gains typically refers to a stock market advance after which stock prices continue at the new level, thus “consolidating” gains. However, the dictionary definition of consolidation is to strengthen gains or make them secure. An investor whose stock picks have paid off during a market rally will also want to consolidate stock gains as the market is consolidating its gains. To consolidate stock gains an investor can sell stock and take profits, use options trading and buying puts on the stock to protect gains, or a combination of the two. To consolidate stock gains an investor should remember the old adage that you don’t have a stock profit until you take a profit. The guaranteed way to profit from a stock, to consolidate stock gains, is to sell your stock. The problem with that approach is that the investor then loses out on subsequent stock price advances. For example, after Microsoft went public in 1986 there were any number of times in the first decade or so when an investor could have taken profits by selling the stock and then would have missed out on further advances. Thus trading options can be an attractive approach to consolidate stock gains in short or long term investing.

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  • 1. Consolidate Stock GainsBywww.CandlestickForums.com
  • 2. Consolidating stock gains typically refersto a stock market advance after whichstock prices continue at the new level,thus “consolidating” gains.www.CandlestickForums.com
  • 3. However, the dictionary definition ofconsolidation is to strengthen gains ormake them secure.www.CandlestickForums.com
  • 4. An investor whose stock picks have paidoff during a market rally will also want toconsolidate stock gains as the market isconsolidating its gains.www.CandlestickForums.com
  • 5. To consolidate stock gains an investorcan sell stock and take profits, useoptions trading and buying puts on thestock to protect gains, or a combinationof the two.www.CandlestickForums.com
  • 6. To consolidate stock gains an investorshould remember the old adage thatyou don’t have a stock profit until youtake a profit.www.CandlestickForums.com
  • 7. The guaranteed way to profit from astock, to consolidate stock gains, is tosell your stock.www.CandlestickForums.com
  • 8. The problem with that approach is thatthe investor then loses out onsubsequent stock price advances.www.CandlestickForums.com
  • 9. For example, after Microsoft went publicin 1986 there were any number of timesin the first decade or so when anwww.CandlestickForums.com
  • 10. investor could have taken profits byselling the stock and then would havemissed out on further advances.www.CandlestickForums.com
  • 11. Thus trading options can be an attractiveapproach to consolidate stock gains inshort or long term investing.www.CandlestickForums.com
  • 12. How can an investor use the purchase ofstock options to consolidate stock gains?www.CandlestickForums.com
  • 13. The strategy is to hold on to the stockafter a rapid advance with the hope thatthe stock itself will consolidate its gainswww.CandlestickForums.com
  • 14. and not be subject to a correction due toits own factors or general marketvolatility.www.CandlestickForums.com
  • 15. Then the investor buys “insurance” inthe form of option contracts.www.CandlestickForums.com
  • 16. The investor buys puts on the stock.Each put contract gives the investor theright but not the obligation to sell 100shares of his stock at the contact price.www.CandlestickForums.com
  • 17. This price, also known as the strike price,is set in the contract.www.CandlestickForums.com
  • 18. If the stock in question drops in price forwhatever reason the investor canexecute the contract and sell his stockwithout losing out on his stock gains.www.CandlestickForums.com
  • 19. His expenses for this “protection” will bethe premiums paid for put contractsand, if he executes the contracts,www.CandlestickForums.com
  • 20. the fees and commissions involved inthe sale as well as capital gains taxes onhis profits.www.CandlestickForums.com
  • 21. At that point, if stock fundamentalanalysis dictates, he will repurchase thestock at the much lower “spot price”with the expectation of another stockprice advance.www.CandlestickForums.com
  • 22. This strategy is, in fact, a way toconsolidate stock gains and retain thestock with the expectation of furthergains.www.CandlestickForums.com
  • 23. In order to consolidate stock gains theinvestor will commonly borrow technicalanalysis tools from traders.www.CandlestickForums.com
  • 24. By doing technical analysis of stocksusing time honored tools such asCandlestick analysis the investor can bewww.CandlestickForums.com
  • 25. able to anticipate market trends ormarket reversal and buy calls or buy putsaccordingly.www.CandlestickForums.com
  • 26. The combination of fundamental andtechnical analysis will allow an investorto consolidate stock gains while leavingthe door open to further advances inalready successful stock picks.www.CandlestickForums.com

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