NEW YORK ( TheStreet) -- Doug Kass of Seabreeze Partners is known for his accurate stock market calls and keen insights into the economy, which he shares with RealMoney Pro readers in his daily trading diary.Among the posts this past week were entries about patience and REITs. Please click here for information about subscribing to RealMoney Pro.
This One Demands Some Patience
Originally published on Friday, June 21 at 4:54 p.m. EDT. By Tim Collins Consider the side of traders looking to enter or expand their positions -- folks seeking more upside, who are even willing to buy if the security falls further. For instance, let's return to Market Vectors Gold Miners ETF (GDX), which actually moved up into the closing bell, getting near $24.85. The $27 buyer may think the stock could be heading back higher, but would also be willing to buy more at a lower level. In this case, a trader could consider a risk reversal or risk reversal covered strategy. In this approach, the trader would look to finance a call spread, which would give them more upside potential. They would use a put sale to finance the call spread, as well as to possibly obtain a lower entry.
For instance, the trader could look to buy the July $25.50-$27 call spread for around $0.49 and sell the July $23 put for $0.51. This is essentially a no-cost entry. If GDX runs back to $27, the trader will now be up $1.50 -- or less if it occurs before expiration -- and there will still be some time value in the short $27 call. Again, the stock isn't above the initial entry, but the trader is showing a profit.