An Options Strategy for Believers
Marchex (MCHX): The $22.50s looked good at $1, but no cheaper. Shares closed March 17 at $21.16, so this play would have lost you money, but it's equivalent to having averaged down on Marchex at $21.50 ($22.50 minus the $1 premium). With this company's 100% year-over-year growth and great business model, I'm happy owning more shares here.
Time Warner (TWX): I liked the sale of the $17.00s for 20 cents, a lot! TWX closed at $17.07 on March 17, so the puts would have expired worthless, and you would have pocketed 20 cents a share. Right now you can sell the $17.00 puts for 30 cents. This is a good move, because I wouldn't mind adding to my Time Warner position at an effective price of $16.70 a share. In fact, I've sold these exact puts in my own portfolio for 25 cents.
Yahoo! (YHOO): Selling the $32.50 for 60 cents carried some risk, but it seemed worthwhile. Since Yahoo! closed at $29.83 on March 17 you would have effectively averaged down at $31.90 if you sold the $32.50 puts for 60 cents. Right now I like the April $32.50 puts for $1.65, but since we just averaged down and Yahoo! has bounced sharply off of its lows in the past week, I believe it's wise to wait for a better price.
This put selling accomplishes two things. We make a little extra money on some of our positions, effectively reducing our cost basis, and we get paid to average down on stocks we like at prices we consider cheap. Not a bad deal, huh?Here are some more stocks in the portfolio I would consider selling puts against: NetEase.com (NTES): This stock has had a very quick run to $90.00, and I would sell the April $85.00 puts for $1.65. I would also sell the $100 calls for $1.10. If these get hit (meaning if NetEase.com goes as high as $101.10 and our shares get called) we will be happy campers, because we'll take nice profits after pocketing the call premiums.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV