'Mad Money' Recap: Back to School

First, pick a stock that you really like, he said.

To show his viewers how to play the volatility game, Cramer picked Occidental Petroleum (OXY).

"OXY is the least hedged of all the oils," Cramer said. "It's in the prime position for volatility."

When you're looking for a company that has volatility, Cramer warned, it should not be a bad company.

After you pick a company, take an opinion, he said.

"Opinions matter to make money," Cramer said. "Act on your opinion based on your convictions."

Taking his example of OXY, Cramer said if you have 300 shares of it, drop 50 shares every time it jumps 3%, and when it goes down, buy it back.

"Treat trading like a dance," he said. "When the stock goes up, sell a little and when it goes down, buy a little."

Buy and sell your stock in increments because small trades equal big payoffs, he said.

The bottom line is you can make money off of a volatile company if your trading strategy includes core positioning, Cramer said. "Take my rules and apply them to yourself."

Cramer gave Pepsi (PEP) and Sears(SHLD), which he owns for his Action Alerts PLUS charitable trust, as two examples of companies with core positions.

Speculation Recommendation

Cramer now turned to speculation and what it means for would be investors.

"The market is full of people who are speculating," Jim Cramer told viewers. We've got fools speculating, and they don't know what they are doing, he said.

Finisar(FNSR) has been cut back by 25% because of speculation, Cramer said. You need to know precisely what a company does and what it is levered to, otherwise you should not own its stock, he said.

"I love speculating, but you have to do it right," he said. "Speculating is not investing. When you confuse the two, you get annihilated."