Corrections like the one the market experienced Thursday make me laugh. Four-hundred-plus point drops in the Dow tend to bring out the doomsayers, the haters and the I told ya so, the sky is falling and the this time it's different crowds.
While I commend CNBC's Jim Cramer for exercising caution Thursday morning, I really wish he would have told Simon Hobbs to go fly a kite or something like that. As Cramer attempted to explain, you have to have hedges in place amidst this uncertainty (just like hedge funds ask questions, so should individual investors), but there's no reason to not get aggressive.
Consider the following stocks and, ask yourself, has the story changed?
Amazon.com (NASDAQ:AMZN). I'm not sure there's a bigger gift than shares of Amazon hitting an intraday low of $179.72 ahead of the holidays. However the company decides to price its forthcoming tablet, one thing's for certain -- the product has nothing to do with firing a competitive salvo at Apple (NASDAQ:AAPL). Rather, it has everything to do with maximizing synergy between Amazon's various business lines.
And speaking of AAPL, it, along with Amazon, will dominate the holiday season. Every other retailer could have an awful Christmas, but Apple and Amazon will generate massive revenue and turn huge profits.
At this point, if you're not a buyer of each company's shares or a straight seller of slightly out-of-the-money put options, I see no reason not to take advantage of the inflated premiums on puts by executing bullish spreads like I have been doing, right up until Thursday, in the $10,000 portfolio.
The strategy requires relatively little margin. I think you run little risk of assignment. And you can probably close the trade out on the next green day for a profit that's certainly worth 24 to 72 hours of your time. But, again, if you don't want to mess around with that -- and I can surely understand why you might not want to -- buying the stocks outright or getting paid to take the risk of getting put the shares makes more sense than most things in this topsy-turvy world.
Though I am not as bullish on CBS (NYSE:CBS) as I am AMZN and AAPL, it's the type of stock that I want to buy when it plunges for no good reason. Time Warner (NYSE:TWX) CEO Jeff Bewkes riffs cautiously about his company's business and peers, including CBS, go along for the ride. If you've listened to CBS's recent conference calls, it's pretty clear that their business is strong, riding the gravy train that is Netflix (NASDAQ:NFLX) and forthcoming advertising boosts from political tomfoolery and the 2012 Olympics.
If you've got enough dough in your account to stay safe margin-wise and make it worth your while, around-the-money August CBS puts look attractive from a seller's standpoint. By the time this article hits the wire, you might not be able to take advantage of that particular trade, but it's the type of thing alert investors look for when broad market panic sets in. You can also pocket a nice premium and give yourself a chance to go long CBS via September put options as well.
For most investors, it probably makes more sense to dive into the stock, however, as a long-term play. It pays a dividend and before the market cracked, CBS was setting up to cross $30 a share.
Disclosure: I am long AAPL, AMZN.
Additional disclosure: I have bull put spreads open on AAPL and AMZN with September expirations.