Click here for an archive of Cramer's "Mad Money" recaps.

Editor's note: This is a recap of a broadcast that originally aired on Aug. 10, 2005

.

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

CNBC

.

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."

Image placeholder title

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.

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

Taser

(TASR)

, 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.

Want more Cramer? Check out Jim's rules and commandments for investing from his popular book by

clicking here

.

Jim Cramer, host of the CNBC television program "Mad Money," is a Markets Commentator for TheStreet.com, Inc., and CNBC, and a director and co-founder of TheStreet.com. All opinions expressed by Mr. Cramer on "Mad Money" are his own and do not reflect the opinions of TheStreet.com or its affiliates, or CNBC, NBC UNIVERSAL or their parent company or affiliates. Mr. Cramer's opinions are based upon information he considers to be reliable, but neither TheStreet.com, nor CNBC, nor either of their affiliates and/or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. Mr. Cramer's statements are based on his opinions at the time statements are made, and are subject to change without notice. No part of Mr. Cramer's compensation from CNBC or TheStreet.com is related to the specific opinions expressed by him on "Mad Money."

None of the information contained in "Mad Money" constitutes a recommendation by Mr. Cramer, TheStreet.com or CNBC that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. You must make your own independent decisions regarding any security, portfolio of securities, transaction, or investment strategy mentioned on the program. Mr. Cramer's past results are not necessarily indicative of future performance. Neither Mr. Cramer, nor TheStreet.com, nor CNBC guarantees any specific outcome or profit, and you should be aware of the real risk of loss in following any strategy or investments discussed on the program. The strategy or investments discussed may fluctuate in price or value and you may get back less than you invested. Before acting on any information contained in the program, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment adviser.

Some of the stocks mentioned by Mr. Cramer on "Mad Money" are held in Mr. Cramer's Action Alerts PLUS Portfolio. When that is the case, appropriate disclosure is made on the program and in the "Mad Money" recap available on TheStreet.com. The Action Alerts PLUS Portfolio contains all of Mr. Cramer's personal investments in publicly-traded equity securities only, and does not include any mutual fund holdings or other institutionally managed assets, private equity investments, or his holdings in TheStreet.com, Inc. Since March 2005, the Action Alerts PLUS Portfolio has been held by a Trust, the realized profits from which have been pledged to charity. Mr. Cramer retains full investment discretion with respect to all securities contained in the Trust. Mr. Cramer is subject to certain trading restrictions, and must hold all securities in the Action Alerts PLUS Portfolio for at least one month, and is not permitted to buy or sell any security he has spoken about on television or on his radio program for five days following the broadcast.