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How much do you know about playing the stock market with options?

The following are highlighted options insights and ideas from



Mad About Options: Bulls Kick Up Potash

(Video, Aug. 4):

Jud Pyle and Matt Buckley review Jim Cramer's recent bullish comments about



and explain why a buy-write is an appropriate options strategy. The Mad About Options crew also breaks down options ideas for







To watch the video, click the player below:

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For more information about Mad About Options, visit



Options Mailbag: Short the Transports


The major benchmark is

iShares Dow Jones Transportation Average


... if you want to be bearish or short the sector, there are several ways to use options... The most obvious strategy would be to sell



One step down on the risk ladder would be to use a sell-write. This consists of shorting the stock and simultaneously shorting

put options

. This is essentially the inverse of a


call or buy-write.

Sticking with the IYT as an example, if you sold 1,000 shares and shorted 10 puts, you would have to pony up $41,500. Let's assume you want to go ahead with this trade; you short the stock at $92 and sell the September 90 put at $3.25 a contract. That gives you an effective sale price $95.25, or 3.4% above the current market price.

But like a covered call, your profit is capped by the stock price minus the strike price plus by the premium collected. In this case, that is $5.25 (92 - 90 + $3.25 = $5.25). That would be a 5.7% gain over the next two months.

Be aware that like a covered call, a sell-write offers limited protection. That means that if the IYT rises above the $95.25 breakeven point, losses will begin to mount.

My preference would be to apply this strategy to specific stocks. Airlines seem like ripe candidates.

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This article was written by a staff member of