51 Option Ideas for Bears

Today is June 23, 2009 and I have read 5 text message alerts, 11 Facebook messages, 14 emails, several "tweets" on twitter, not to mention listened/watched several hours of doom and gloom in the past 12 hours.

So is this doom and gloom real? Is the market due for a correction? I cannot answer these questions, but I do believe we'll have some sort of pull-back in the month or so to come, especially now with all the doom and gloom talk creeping back up everywhere.

If you're coming across this article you most likely hold or at least have interest in a stock I'll be talking about shortly. In this article I will lay out 51 option ideas, which will help hedge your portfolio against the downside. These ideas all require using the Bear Put Option Spread Strategy.

The 51 stocks used in this article are the stocks with the current highest market cap in the S&P 500 (I meant to crunch the data for the top 50, but realized I have data for 51, but an extra stock can't hurt, right?). To get a detailed spreadsheet of all 500 stocks, which will allow you to rank them based on their market cap minute by minute with the click of a mouse check out my blog post here.

The objective of this article is to protect any of these stocks by purchasing Put protection, but protecting the stock all the way to zero, may seem pointless and expensive (especially for these 50 companies).

Therefore this strategy allows you to protect them for a bit cheaper premium, and still providing at least 5% protection through July option expiration (assuming the higher strike price is hit and spread is filled from the table below). To learn more about the Bear Put Option Spread strategy, and option spreads in general click here.

The higher strike price from the table below is a bit lower from the current market price (excluding Lowe's (LOW), Comcast (CMCSA), Bank of America (BAC), and Amazon (AMZN) - stocks currently in the money), which won't allow you to 100% of the downside, but it won't lose as much money in case the market moves sideways or continues to rally over the next 25 days.

Below is the list of 51 stocks sorted in alphabetical order. To get a printable version of these 51 stocks ranked in order from cheapest to most expensive cost of hedging these stocks click here.

The higher strike is the option you'd be purchasing and lower strike you would be selling to complete the spread. This will allow you to hedge yourself cheaper, but will also limit the profit you can make from the downside. You'll most likely need to adjust the strike prices and expirations accordingly, depending on how much you'd like to hedge your position and your opinion etc...

Although the risk is higher for these strategies, it is a great way to hedge your portfolio without selling your stock and waiting to buy it back for a lower price, as we all know we cannot time the market. As I became very bearish in August 2008, I had many of these strategies in place and it protected me greatly from the downside experienced in the following months. If you are very bearish you may want to buy the puts similar to these listed in this article without selling the lower strike option, this will allow you to hedge your stock all the way down to zero, but will also be a bit more expensive.

If you liked this article or found it helpful, check out my other articles and or follow me on Seeking Alpha. Good luck trading!

Disclosure: Long BAC, GOOG, GS, PFE

Comments

[BlueOkie:]

Economy of words would be helpful.

Jun 23 03:11 PM

[BeachRider:]

HPQ is showing up in too many bear-scenarios. There must be some kind of negative sentiment on their future success with EDS and Computer Storage. The IA-32 server business is still sound, but not much growth in CY2009. There is no clear signal with their IA-64 (Itanium) stuff.

Jun 24 10:20 AM