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Yahoo! Has Room to Grow

You can gain a greater understanding by looking at the price chart, observing the new highs followed by a retracement, and again followed by a new high. Stocks in an accumulation phase never go straight up and can remain in the current pattern for years.

Watch for an entrance near $24.50 or lower as a starting point to add to or initiate a position. You can also use options to reduce your risk through hedging. If Yahoo! reaches our entry level, look to sell a July $24 strike put for about $1. Your overall risk is 5% lower and if Yahoo! shares continue to decline without a bounce, your cost basis will only be $23 instead of $24.50.

If Yahoo! continues to climb, you limit your profit to only about $1 a share, but that's hardly anything to feel regretful about, considering your 4% gain in about six weeks.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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