I also will look to sell the increased amount of investor fear. Selling fear is a strategy that surprisingly to some, actually lowers my risk also. By selling put options instead of buying the stock outright, I leave myself room for the shares to move before facing a loss.
For example, if late Thursday the shares are trading near $43, I will look to sell the August $40 strike puts for about 90 cents. If Walgreen continues to fall and I receive an exercise notice, my cost basis will be $39.10. If Walgreen's shares remain at more than $40, the most I can make is 90 cents, but that is a return of more than 2% in less than two months. Just as beneficial, investors also have lower risk than an outright buy. Additionally, if the shares sit and trade sideways for a month, as long as they are above $40 on expiration day, this strategy pays off in full.
At the time of publication, Weinstein held no shares of stocks mentioned.
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