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  1. #1
    AszqewrbSn Guest

    Default Options strategies for next week


    The sharp decline in the Dow industrials has priced many good stocks at attractive levels -- at least compared with recent prices. Sophisticates will sneer that stocks may snap lower once more, but isn't that how positions are built, and why so many investors use yield-enhancing options strategies like overwriting to manage stock positions? Clearly, many investors bought into the stock market's decline on Thursday. That's one reason why the Dow closed down 310 points rather than down 400 or more points. At Credit Suisse, there were even reports of buyers of short-dated calls in the S&P 500 SPDR (ticker: SPY) and Select Sector Energy SPDR (XLE). To be sure, Friday's decline demonstrates it's still a nervous market

    Investors who believe the sell off is overdone should consider buying January 2009 options on stocks that are exhibiting strength, often based on international revenue, and that are expected to lead the market as investors rotate out of what had been fast-growing small-capitalization stocks. The long-dated options contracts cost a fraction of the price of buying the underlying shares outright, and limit how much money is at risk.

    Look at Coca-Cola's (KO) January 55 calls, recently trading at $4.70; Johnson & Johnson's (JNJ) January 60 calls for $7; General Electric's (GE) January 40 calls for $4.30, Altria's (MO) January 65 calls for $8.70, and Verizon Communications' (VZ) January 42.50 calls at $5.40. All the options expire in January 2009.

    A 25% increase in the stock price should, by some calculations, produce a 100% return in the original options position.

    Another strategy is selling puts against stocks. Investors will realize a juicy premium because put prices are high, reflecting investor fear. Yes, the stocks could fall below the puts' strike price if the market rout continues, but these recommendations are meant for investors who use options to better navigate the market, rather than for traders

  2. Default

    Options Plays on Stocks the Hedge Funds Love
    HEDGE FUND MANAGERS ARE SUPPOSED to have extraordinary insights into the market. After all, isn't that why they get paid so much?

    Now that the stock market is losing value, and everyone is trying to decide if they should buy or wait to see how the market shakes out, an opportunity emerges that lets John and Jane Investor benefit from hedge-fund market insights without investing in hedge funds.

    At Goldman Sachs, equity strategist David Kostin advised clients in a morning note that stocks in the Standard & Poor's 500 Index with the highest hedge-fund ownership concentration have outpaced the index during six of seven months following a stock market decline.

    Options can be used as a surrogate for buying the stocks, which further reduces the risk of owning equities at a time when the market may snap lower.

  3. #3
    Batteryecy Guest


    When selecting calls to implement rebound trades, look for calls that expire in August or September with strike prices closes to the underlying stock price.

    This way the stock doesn't have to move too much to increase the value of the calls.

    Investors interested in owning the shares because they think the hedge fund traders have identified stocks with good prospects might want to consider establishing positions by selling puts, or even buying long-dated calls.

    The stock list includes: Sears Holdings, LSI Logic; AutoZone; Wendy's International; Goodyear Tire & Rubber; AutoNation; Fidelity National Info Services; Express Scripts; Circuit City; Clear Channel Communications; PMC-Sierra; Consolidated Energy; Harrah's Entertainment; Allegheny Energy; Temple-Inland; RadioShack; NCR Corp., Bausch & Lomb; Cb Richard Ellis, and KB Home.

  4. Default

    The basket's percentage of ownership by hedge funds averages 24%, compared to 5% for the S&P 500 Index.

    Kostin said in his note that the illiquidity of some of these positions may explain why during sharp-sell offs, the shares drop further. S&P 500 has retreated 4.5% since peaking on July 19, while the concentrated hedge fund holdings have dropped 8%. "When the rebound comes, these stocks should outperform," he said in his note.

  5. Default

    I bought some shares of LVLT last week at 5.12. I kinda want to buy some more because I think LVLT should rebound this week (now at 5.00). I like ENR for option plays. I Almost bought 1 option of it last thursday, but thankfully my online broker couldn't let me because I never sent them my papers to become a option trader. I would be down a lot because the stock is at $100 now and was at 105-106 when i wanted to purchase it. What do you guys think of the market's ability to rebound? I think the market should rebound either this week or next. I'm extremely bullish and I think this has been a sale for stocks.



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