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I have spent most of this week talking about options during the day and watching the Orioles actually win baseball games most evenings. The more in-depth discussion of trading options is a departure from my usual subject matter, but I believe it is an important one. Combining options and value stocks is a strategy that has a lot of potential for profits if used correctly. Most options traders do not even consider the valuation of the underlying stock, and most value investors do not consider options to be serious part of their investment toolbox. So I have long theorized that, if a pure value investor and an options expert teamed up, they would create an approach that was almost an anomaly -- and such a combination would, in my opinion, be wildly profitable.

I have given thought at various times to finding a partner and raising money for such an approach. If I ever did, the combination trade would be a large part of my trading activities for such a fund. The combination is one of my favorite trades, and I have used it in the past with strong results. I usually use this approach when a stock is bombed out and has fallen sharply. My most successful combinations have been one-time blue-chips or midcaps that have fallen into single-digit midget status. When I find one, I like I buy 1,000 shares of stock and simultaneously sell 10 calls well above market value, as well as 10 puts below the current price....565 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.