How to Protect Stock Gains
Most of the major stock indexes are within shouting distance of their four-year highs mostly due to real or perceived Fed intervention. The mood amongst investors is skeptical related to the stock market going very much higher. Keep in mind that most of the major indexes have already recorded close to double digit gains already this year, which is above historical averages for an entire year of gains and well above recent yearly results. It appears that without further Fed stimulus a majority of investors and stock market pundits express doubts about whether the recent bullish stock move has 'legs". As such, most smart investors are looking for an opportunity to protect their gains in case the market turns down like it did to the last two summers.
The S&P 500 Index daily chart indicates that stocks are stalling out at recent highs and prices may be ready to head lower.
Investors who want to trade on a downside price move are considering a simple strategy to profit from the S&P 500's possible move lower. For example, buying a SDS ETF (Exchange Traded Fund) September expiration call option – SDS (NYSEArca: SDS) seeks daily investment results, before fees and expenses, that correspond to twice the inverse (-2x) of the daily performance of the S&P 500 Index – in other word this ETF profits when stock prices drop. Purchasing the September $15 strike price SDS call would only cost $.45 per share (based on yesterday's close, but would generate gains the further stock price drop and the SDS moves above $15 anytime prior to September 21st. For an explanation on the basics of option trading and description of how trade is set up go to http://www.theoptionplayer.com/strategies/
By Gregory Clay