This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

How to Cover Your Assets in a Speculative Stock Position

NEW YORK ( TheStreet) -- Speculative investing gets a bad name.

That's because too many investors treat it like they do phone calls, text messages, Facebook posts and Tweets after having too much to drink. Drunk dialing, texting, Facebooking and Tweeting are all sloppy, not very well-thought out endeavors that tend not to end well.

When you speculate, you should do it not only in moderation, but with companies you know well.

All too often, investors associate low-priced stocks or once-healthy, now-depressed companies with speculation. While these and similar factors might ultimately be ingredients of a speculative play, you absolutely cannot use them -- in and of themselves -- to identify specs.

I like to take spaces I know well and search for speculative opportunities within them.

For example, I break media and telecommunications stocks down into large companies with their hands in a bit of both (e.g., VZ, T, RCI, BCE), pure-play old guard media (e.g., TWX, DIS, NWSAB) and new/social media tech types such as Yahoo! (YHOO - Get Report) and Pandora (P - Get Report).

Because I know the space well and have had success with several of its not-so-speculative plays, it makes sense to up the risk here and there.

As a general rule, I do not go long a speculative stock if it's not optionable. It must not only have options available to trade, but there needs to be liquidity and a healthy selection of strikes and expirations. Sufficient volume to keep me away from crazy bid/ask spreads helps as well.

Consider Yahoo!

In Marissa Mayer is a Woman, Hear Her Roar and Buy Yahoo!, I suggested that, with the stock trading around $15.80, it might be time to buy.

I did just that, accumulating a small position at a cost basis of $15.89. The stock promptly ran past $16.00, pulled back and then, after closing Monday's session at $15.77, bolted to around the $16.50 level in earnings-induced after-hours trading. In case you missed it, Yahoo! turned in a solid report Monday afternoon.

On Friday, I wrote weekly YHOO $16.50 calls (expiring Oct. 26) against part of my position.
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
AAPL $126.44 -0.13%
P $15.17 -1.11%
YHOO $39.38 0.13%
FB $87.28 0.43%
GOOG $523.40 0.30%

Markets

DOW 17,730.11 -27.80 -0.16%
S&P 500 2,076.78 -0.64 -0.03%
NASDAQ 5,009.2140 -3.9090 -0.08%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs