What to Do If You Missed the Snapback

I have a vague idea of what the term "price elasticity" means to economists, who deal in theory, but I know we are seeing it first-hand in the recent price action of stocks. Or maybe it's more like a rubber band -- its stretched too far, and then you see a huge snapback.

Forget the government's promise to prop up the financial system, which has allowed names across the sector to rebound some 20% and even 40% in just the last week. It's the precipitous drop in oil prices that is causing some eye-popping price moves across the travel and leisure sector.

Look at the airlines, such as Continental (CAL - commentary - Cramer's Take), which more than doubled in the past week. Look at the cruise lines such as Carnival (CCL - commentary - Cramer's Take) and Royal Caribbean (RCL - commentary - Cramer's Take), which have each jumped some 25% in the past five trading days.

Casinos such as Wynn (WYNN - commentary - Cramer's Take) and Las Vegas Sands (LVS - commentary - Cramer's Take) have moved up about 30% in the past week.

These we all falling knives, and if you didn't grab the handle just right when oil reversed, you got bloodied or simply missed the move. But don't feel bad; these moves are mostly short-covering and becoming completely overdone.

They are stretched too far, and I believe the prices will contract back to the middle of their recent trading range over next few weeks. Think about some premium selling strategies such as strangles.

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Steven Smith writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He was a seatholding member of the Chicago Board of Trade (CBOT) and the Chicago Board Options Exchange (CBOE) from May 1989 to August 1995. During that six-year period, he traded multiple markets for his own personal account and acted as an executing broker for third-party accounts. He appreciates your feedback; click here to send him an email.

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