When do you use calls instead of common? Sometimes I like to use them to spec on something that I don't know will pan out, but if it does, I could have a home run. And if it doesn't, I am not killed. Remember, we are often wrong in our hunches, and we still want to take them; we just don't want to be crushed by them.
So last week when
out of bankruptcy, I figured that, if the Street liked this combo, the stock, then trading at 46, could go to 50. If it didn't, well, who knows as
toys (don't we parents know! I asked for a
the other day at the BK in Flemington, N.J.!). So I bought the calls for a buck and a half.
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The Street, it turns out, hated the combination and the fundamentals had turned south. Next thing you know the stock is at 41. With the common, I would have been out 5 smackers, but with the calls I was stopped at a buck and a half.
Of course, I shouldn't have done the trade in the first place. But I did. So be it. Sometimes controlling the size of a loss can be the best thing you can do.
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long McDonald's. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at