Consolidate Stock Gains

Consolidate Stock Gains
By
www.CandlestickForums.com

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.

How can an investor use the purchase of
stock options to consolidate stock gains?

The strategy is to hold on to the stock
after a rapid advance with the hope that
the stock itself will consolidate its gains

and not be subject to a correction due to
its own factors or general market
volatility.

Then the investor buys “insurance” in
the form of option contracts.

The investor buys puts on the stock.
Each put contract gives the investor the
right but not the obligation to sell 100
shares of his stock at the contact price.

This price, also known as the strike price,
is set in the contract.

If the stock in question drops in price for
whatever reason the investor can
execute the contract and sell his stock
without losing out on his stock gains.

His expenses for this “protection” will be
the premiums paid for put contracts
and, if he executes the contracts,

the fees and commissions involved in
the sale as well as capital gains taxes on
his profits.

At that point, if stock fundamental
analysis dictates, he will repurchase the
stock at the much lower “spot price”
with the expectation of another stock
price advance.

This strategy is, in fact, a way to
consolidate stock gains and retain the
stock with the expectation of further
gains.

In order to consolidate stock gains the
investor will commonly borrow technical
analysis tools from traders.

By doing technical analysis of stocks
using time honored tools such as
Candlestick analysis the investor can be

able to anticipate market trends or
market reversal and buy calls or buy puts
accordingly.

The combination of fundamental and
technical analysis will allow an investor
to consolidate stock gains while leaving
the door open to further advances in
already successful stock picks.

Consolidate Stock Gains

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