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In the middle of the market calamity it pays to know your options. What options you ask?
We’re talking puts and calls.
Unprecedented volatility and an appetite for protection had even the quickest traders on the Street moving faster than ever before. And for the first time ever, total options volume at the CBOE (Chicago Board Options Exchange) crossed the 1 billion milestone last year, a 25% jump from 2007.
While equity traders were just getting their sea legs in the maelstrom of 2008 the violent market swells were second nature to the players in the options pits – some say it was a perfect storm that only they could navigate.
Any way you slice it, it’s a lesson no investor will soon forget -- either use options to protect and profit or you get burned.
Now that traders of all stripes are pumping up the options volume – CBOE the largest options exchange in the world may be about to go public.
So how do you get your slice of the options action?
“The most popular strategy that I think people ought to be looking at is covered writing,” says CBOE Chairman & CEO William Brodsky. “I’d say buy stocks that pay good dividends and sell calls on those stocks. Buffer yourself on the downside.”
You can game it many ways. However, Brodsky suggests “taking a look at PowerShares S&P 500 BuyWrite Portfol ETF [PBP
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] and/or the Gateway Fund (which is a mutual fund.)
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Trader disclosure: On Jan. 7th, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Najarian Owns (CSCO), (MSFT); Najarian Owns (XME) Calls, (NVLS) Calls, (NVDA) Calls; Najarian Owns (XLB) Call Spreads; Najarian Owns (EEM) Long Call Spread; Najarian Owns (ERTS) Long Call Spread; Najarian Owns (MSFT) Short Calls; Seymour Owns (AAPL), (BAC), (EEM), (F), (FXI); Karabell Owns (CL), (DRYS), (FCX), (GOOG), (JPM), (NOK)
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