Using Options to Repair a Portfolio

This quarter's inevitable list of earnings disappointments has combined with the "Spitzer" stocks to create an unusually long list of shares that suddenly have large losses.

Among the names that have been kneecapped over the past few weeks are insurance companies under direct investigation, such as AIG(AIG Quote) and Marsh & McLennan(MMC Quote), and those suffering from collateral damage in the fear they may be next, such as Cigna(CI Quote) and Aetna(AET Quote).

This brought to mind a recent email from a reader who owns UTStarcom(UTSI Quote) from $33 (it's currently trading around $17.50). This reader asked if "there is an appropriate options strategy for recouping losses, because even though I think it will eventually come back over the next year, I would like to recoup some losses without waiting for a 100% stock increase. Should I buy cheaper out-of-the-money calls, or short puts?" ...