Time Trades, Pick Stocks… Or Absolute Control?

Greetings, Traders!

Sooo… I’m the ONLY stock and options trading ‘guru’ I’m aware of that brags about his LOSERS. But it makes sense. See, if you are a fanatic about controlling losses, then you can swing a better line when you have a winner.

I’m writing to you today about POT, my most recent loser. Just closed ‘er now for a 6% loss, though the stock itself is down 18.7% from where I got in. You’ll see how that happened below.

But, I wanted to post something for your enjoyment first: the consensus of stock analysts

Isn’t THAT a daisy? Heh… out of 18 analysts covering the stock, only 4 exhibit any kind of caution with a “hold” recommendation. 3 say “moderate buy”… meaning buy it, but don’t make it the mainstay of your investing portfoolio. Ahem. PORTFOLIO.

A shocking ELEVEN out of EIGHTEEN analysts say this stock is juuuust ducky. “Strong Buy!” they urge. “You should pin your hopes on this one, ‘cuz it’s a shoo-in!”

Just sayin. Oh, and there were NO “Moderate Sell” or “Strong Sell” recs, even thought the stock did this:

Yowza. Lookit the last four days…

Wow. So, is picking stocks the way to go? I’m not trying to trash the reputation of the anal-ysts that thought so highly of this stock that’s in the toilet now. I’m just saying caveat emptor… “let the buyer beware.”

Now, I was silly enough to buy this stock. Shucks, I’m silly enough to do LOTS of things… but here’s how I buy stocks: with an unlimited upside potential but also with a hedge so that if things go horribly wrong, I can get out with only a single digit loss.

Here was the announcement to my FUSION Subscribers four weeks ago when I picked up POT:

POT (Potash Corp. of Saskatchewan Inc.) Buy to Open 200 @ $56.90
POT 2012 MAR 60.00 PUT Buy to Open 2 @ $8.35
Bought shares of POT $56.90
BTO Mar 2012 60 Put +$8.35
Total Investment $65.25
Guaranteed Return -$60.00
Total amount AT RISK $5.25 or 8.0%

In honor of all the ‘dispensaries’ opening in my little town of Palmer Lake, CO… I’m going to buy me some POT!

Heh… don’t get too excited… I mean Potash Corporation of Sasketchawan, not the green leafy stuff.

This is my first foray back into the market and I’m beginning again to be optimistic. Checking the bid-ask spread on POT’s options make ’em look real good for Income Methods; when they are too wide it’s difficult to make a good spread work at the right price. But POT looks liquid and popular enough to be on my dance card.

200 shares and 2 contracts would make this a fine addition to a $100K portfolio with just about 1% portfolio risk.

Okay Traders! Be looking for our new FUSION course… available without charge to you lucky subscribers… to be made available in the very near future. For now,

Happy Trading!


SO that was 28 days, four weeks ago, today. At that time, POT was showing strength in an otherwise, shall we say ‘pressured’ market. I had no idea that she would take a dive to the tune of nearly twenty percent, but then neither did any of these analysts.

Thank GOD for the Married Put play, which protects you and me to the tune of only single-digit losses in case we’re unlucky enough to buy a stock that doesn’t behave. Here’s was my post today to FUSION Subscribers:

IM Close Sell to Close Stock POT 200 $46.26 9/23/2011
IM Close Sell to Close Put 2012 MAR 60.00 2 $15.10 9/23/2011
Hide Trade Briefs from 9/23/2011

OUCH! Lookit THAT crash…

Well, I’m glad to have been RadioActive. “Put” me down for a small, single-digit loss instead of this precipitous plunge.

Happy Trading,


Instead of exercising the put option, sometimes it’s profitable to sell the stock and the put separately. That’s the technique you’re seeing above. Instead of hitting the maximum 8% loss, instead we have a 6% loss. This is because the put still has some time value left, being waaay out to March Expiry.

SO why am I the only stock trading ‘guru’ to BRAG about his LOSERS? Because no one else wants you to look at theirs… it kind of rains on the parade when you have to admit you’re wrong now and again, and that those losses reeeeeeeeally cut into the cherry-picked gains.

Look, here’s the math: 6% loss beats the living puddin’ out of an 18.7% or worse loss. I now am in position to play again, but in case it’s a winner I get to play with 94 marbles instead of 81… get it? 😉

I’ve proven this again and again, and done it publicly: tightly controlled losses plus open-ended gains equals long-term success.

All righty, gang! See you in the trenches. Til then,

Happy Trading!


About Kurt Frankenberg

Kurt Frankenberg is an author and speaker about entrepreneurship, martial arts, and trading the stock and options markets. One of several "Biznesses" he founded as a teen, The Freedom School of Martial Arts, has been in continuous operation since 1986. Kurt lives in Colorado Springs with his wife Sabrina, German Shepherd Jovi, and his ninja cat Tabi.