MINNEAPOLIS ( Stockpickr) -- Cut through the current debate regarding a double-dip recession, and you find economy that is stagnant at best. The Federal Reserve has lowered growth expectations to paltry levels. Nobody is predicting booming growth any time soon.As stock market participants weigh the possibilities, we seem to swing from one extreme to another. Stocks go up one day only to lose value the next. When stock values do rise, they seem to do so for technical or opportunistic reasons. The buyers are far from long-term players in the market. What is an investor to do in such an environment? There are plenty of strategies, of course, but doing nothing should not be an option. At the moment, options are getting their fair share of attention. I've met many astute investors that are writing option contracts against positions that are owned in portfolios. In doing so, they collect the premium on the contract if stock prices fall. If a contract expires without execution, the call writer keeps that premium. With the volatility in the market, option prices are steeper than normal. Using this strategy is a great way to augment returns. Use it on a stock that pays a dividend and you could collect total returns of 8% to 10%. Related: 5 Rocket Stocks to Buy This Week A less-complicated approach, and one favored by some of the most successful hedge fund and institutional managers on Wall Street, would be to follow an absolute returns strategy. The idea is to take a long position in a stock and pair it with a short of another stock in attempt to capture relative outperformance and absolute returns, regardless of market direction. Here are two pair trades for a stagnant economy.
Long Lithia Motors/Short AutoNation
Long MasterCard/Short Bank of America
Twitter and become a fan on Facebook. At the time of publication, author had no positions in stocks mentioned. Jamie Dlugosch is a founder and contributor to MainStreet Investor and MainStreet Accredited Investor . Formerly, he was president and CEO of Al Frank Asset Management. He has contributed editorially to The Rational Investor , The Prudent Speculator , Penny Stock Winners and InvestorPlace Media .