Cutting Through the Frustration
The frustration is thick enough to cut with a knife. Just when we seemed ready for the correction many wanted, equities bounced higher again. Although I am not entering new short positions, I continue to trim or re-examine my holdings. I am still tepid, but for those looking to limit risk and maintain long exposure, a stock replacement strategy could certainly be used, especially on non-dividend or high-volatility names.
My preferred approach is to buy an option with some time, either a March 15 expiration, which isn't much time really, or the April expiration and look for a delta around 0.70 or higher. There are two issues to note. First, this option is going to have a time decay risk associated with it. Part of the premium will be made up of time value, so this part of the premium will be lost day by day as we move closer to expiration. Second, there is still a decent-sized premium in relationship to the price of a stock if I am buying a delta of 0.70 or higher, especially on volatile names....319 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.
There’s no substitute for a trading floor to get great ideas, so Jim Cramer created a better one at Real Money and blogs there exclusively. We then added legendary hedge fund manager, Doug Kass, with his exclusive Daily Diary and best investing ideas. Staffed with more than 4 dozen investing pros, money managers, journalists and analysts, Real Money Pro gives you a flood of opinions, analysis and actionable trading advice found nowhere else, and allows you to interact directly with each expert.
Already a Subscriber? Please login.
