I also will look to sell the increased amount of investor fear. Selling fear is a strategy that surprisingly to some, actually lowers my risk also. By selling put options instead of buying the stock outright, I leave myself room for the shares to move before facing a loss.

For example, if late Thursday the shares are trading near $43, I will look to sell the August $40 strike puts for about 90 cents. If Walgreen continues to fall and I receive an exercise notice, my cost basis will be $39.10. If Walgreen's shares remain at more than $40, the most I can make is 90 cents, but that is a return of more than 2% in less than two months. Just as beneficial, investors also have lower risk than an outright buy. Additionally, if the shares sit and trade sideways for a month, as long as they are above $40 on expiration day, this strategy pays off in full.

At the time of publication, Weinstein held no shares of stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Robert Weinstein currently blogs, mentors traders, and writes several weekly columns in Rocco Pendola's Option Investing newsletter from his home in northern Wisconsin. Robert tends to focus on the psychological importance of goals, risk mitigation, emotion, and relatively short term market exposure. With nearly 30 years of studying and investing experience, Robert has experienced the many ups and downs in the financial markets and uses the knowledge gained to maintain balance. Robert believes the best way to make money investing is to avoid losing it. The best way to avoid losing is to know what emotional traps lay in the path of investors and learning how to avoid them. Robert is a voracious reader of financial related books often completing more than one book a week while not trading or writing. Robert contributes to his blog at paid2trade.com on a regular basis with an emphasis on studying behavior finance.


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