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