Saturday, July 18, 2009

On the Margin Trail

Hospira has advanced since I last reported, but is still down 11% from my purchase point. If the stock rises $3 a share, I'll be tempted to sell it, pay off the margin loan, and be done with it. But, if that happens, I would probably instead just place a sell-stop order slightly below the market price. In other words, if it rises to $40, I'll place a sell-stop at $38.50. That way if the stock stays above $38.50, I hold it; if it drops, it's liquidated. What I won't do is let the stock go up to $40 and then plummet with me still holding it like a total loser.
On the other hand, what if Hospira (HSP) drops from here? Then, I move on to Plan B, which is to take a loss, throw some cash money on the table and walk away from this crazy idea of borrowing money backed up with stock as "collateral."

On another note, the 200 shares of FMBI that I inherited a few years ago were triggered and sold at $5.99 when my sell-stop was activated. But, now that the big banks are reporting positive earnings, little bank holding companies like this one are starting to rise again. Unwilling to jump in just now, I placed a buy-stop-limit order for 100 shares FMBI, with an activation price of $10 and a limit price of $10.50. What if the stock drops from here? I'll be glad I never bought it. But if it rises to $10 or more, I'll end up with 100 shares.

Again, the idea that "this Series 7 stuff has nothing to do with the real world" is crazy. I'm using sell-stops, buy-stop-limits, and margin loans in my daily life. And pretty soon so will many of you.

Careful out there.

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