Wrong! Rear Echelon Revelations

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Avon Paints a New Face on Risk

Jim Cramer

Did Avon (AVP Quote) change the equation? Did it put new meaning to the word risk, especially when contrasted with the Red Hots?

Let's face it, if you want wild upside and downside, if you want thrills, you turn to the Red Hots. But when you want staid, boring growth, with a minimal downside you turn to -- well, Avon.

Or so we thought.

Today's stunning decline in Avon -- and here I was buying it on the first dip despite all that Gary B. Smith has taught me on our TV show -- makes me think that we have the risk/reward all wrong for stocks like Extreme Networks (EXTR Quote) or Red Hat (RHAT Quote).

You know that, short of a takeover, there is no way that Avon could ever go up nine points in a day. But billions in equity could be wiped out by what has to be considered a not-that-giant miss.

Meanwhile, you could pick up nine points just standing around a Red Hot. You could catch 40 or 50 if you got it right. And gains of 500% to 600% are not unheard of.

So if a boring stock could lose 30% but gain at most a percent or two on a given day, and a wild, out of control stock could lose or make 30% in a given day, which has the better risk/reward?

Why, the Red Hots, of course. Which is why I will continue to pound away at these stocks and try to get you as much info as I can about them.

Maybe, one day, instead of it being Jim Cramer's Red Hots, it will be TheStreet.com's Red Hot index.

Hmmm, I think it should be now. Judging by your emails, you agree.