Mike, What to do if the bear is coming. The recommendations are often different for a tax advantaged account than a currently taxable account, but not when I give them. I always say to do what is smart and worry about taxes later. Here are some concepts that are protective and generate income:
1. For someone who is still bullish but worried, Sell your stocks and keep your upside intact by buying calls using a 90/10. See techstocks.com.
2. Buy out of the money protective puts to limit your losses. This is very similar to buying out of the money calls.
3. Stockpickers' delight. Hold your stocks but sell index futures. You are not indexed, so if you can outpick the market, you make lots of money no matter what the market does. This is called a market neutral position.
4. Use paired trading. If you are long Dell, short Compaq or vice versa. That takes the industry and market factor out of your picks. Again, a market neutral stategy. However, in this strategy and #s 5 and 6, you have to get a great short rebate from your broker.
5. Buy discounted closed end funds and short Webs against them. This is called squeezing the discount.
6. Buy the Web and short the premium Cef against it. Tough to borrow.
7. Speculate on capitalizations. Buy Russell 2000 puts and S&P 500 calls or vice versa.
8. Speculate on sectors. Buy Sox puts and XAL calls, or vice versa. Or, keeping it closer to related, buy XCI calls and Dot puts.
9. Put together a 90/10 put program. This and Number 1 can be done at the same time. I just don't recommend you use the same stocks. Have an opinion and be right. <g>
10. Do some interest rate spreads. An example would be to buy a AAA preferred like Gabelli Fund preferreds and buy puts on the T-bond.
11. Look at commodity call options. Commodities have been down forever. If you believe in buy low and sell high, this is the land of the buylows. <g>
12. Sell some Leap calls against stock positions. This is not a panacea, but the premiums are so high that they really help if the stock craters. And you get a decent return if it doesn't.
13. Cash does not cause cancer, though I once got a bad dose of the...well, it wasn't the money's fault anyway. <g>
That's my baker's dozen for right now. There are many others. I'll post referencing this reply when I think about them.
MB |
