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Editor's note: This is a recap of a broadcast that originally aired on Aug. 10


For those interested in speculation, Jim Cramer offered more tips on where and how to find the best opportunities during Wednesday's "Mad Money" show on



Having already covered some of the main points

on a prior show, Cramer said he wanted viewers to "speculate like you mean it."

Among the many emails he receives, Cramer said a significant number of them are from investors with questions about penny stocks, companies with no earnings or issues trading on the Pink Sheets, a loosely regulated trading system that handles mainly small firms.

Avoid those, along with the names traded by way of the over-the-counter Bulletin Board, he said. "There's a sweet spot in the speculation business -- the $2 to $10 spot," he said. "This is where you'll make all the money."

Should there be a stock that interests an investor but trades above $10, "you might want to consider using options to speculate." As for the names under $2, "the company is probably managed by incompetents," he said. "Don't waste your time with anything under $2."

Cramer cautioned that many stocks on which one speculates will become worthless, but they should be balanced out by the picks that more than make up for the weak performers.

As on the previous show, Cramer emphasized that speculation must be done only with discretionary money -- that is, money that won't be missed if it's lost -- and never money in a retirement account.

One caller to the show asked what opportunities might exist in foreign-exchange speculation.

"Have you ever seen a sheep before and after? Before and after they fleece it? That's what happens when you speculate in currencies," Cramer warned.

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Speculative stocks grow very quickly, but they can die very quickly as well, meaning investors must keep an eye on what he called the life cycle of the company.

One example he offered was



, where "you could have made a fortune speculating" if the trades had been timed correctly. The time to be in Taser was before the company started getting contracts for its products. After that, more investors started following the news, buying the stock and driving up the price, he explained.

In order to spot a stock worth taking a chance on, investors should speculate only on the companies with solid fundamentals, he said. The essentials for a good speculative opportunity are a sound balance sheet, a good product and a small float. A small float is important because that means the stock is subject to potentially big moves if only one large institutional investor starts buying.

And as for knowing when to get out, the key is to watch the volume. When the volume is spiking, cash out, Cramer urged.

Crucially, he pointed out that bad speculators are prone to certain bad habits. Among them are selling too soon, holding a position that keeps going down, believing the hype, buying the worst company in a good sector and speculating on takeovers.

James J. Cramer is a director and co-founder of He contributes daily market commentary for's sites and serves as an adviser to the company's CEO. Outside contributing columnists for and, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for

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