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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 - Get Report): 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 - Get Report): 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 - Get Report): 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.

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