Stock Replacement Strategy

If you have gotten out of the market and are going to try and time your reentry you may want to consider the following strategy. The stock replacement strategy is for stocks that you want to look at for a long term hold, or simply find them attractive at a much lower price. Let me give you an example. AMZN has dropped from $2000 to $1375.  That is a drop in excess of 30%. We don’t see this point as a good entry until we see some stabilization. That being said we would find it much more attractive at $1100 per share, that is another 20% drop from it’s current price.

The strategy would be to sell a put at $1100 strike price. This means that 20% down, and the premium you will receive will place you in the stock below $1100 per share. That is 45% off the high.  The beauty is that you are letting the stock come to you. If the stock is put to you, we believe it is a good price, if not you have collected the premium.   We would encourage you to buy out of the put if we have an outstanding rush to the upside. Keep an eye on our suggestions.

As always consult your financial advisor before investing of any kind. Options are not suitable for all investors, people can and do lose money. All investing involves risk, so having professional advice is key. Optionsdojo makes no warranties or guarantees regarding specific performance. Invest at your own risk.

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