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Monday, September 15, 2008

How to make money no matter how bad the markets do...

Mr. Bear Market Said...

There is a way to alway come out ahead... It's not always a guarantee, but you will do very well in a volitile market (which is what we live in) and you'll do better than most in a bear market.

Buy EEM (I Shares Emerging Market ETF) and sell calls "out of the money"
Why EEM?
It's a basket of stocks from all foreign markets (domestic is not where you want to be) in varying industries. So it combines aggressiveness with diversity. This is ideal for this play. (You need volatility for this play)

Why sell the calls?
By selling calls, you sell some of your upside potential for some profit now. By selling them out of the money, it allows you to keep your stock (if the stock doesn't go up enough to meet the target price, you can continue selling the calls every month for more money.) If the stock goes down, you took some money off the table already, so you'll be doing better than the market. Plus you should use proceeds from the sold calls to buy more stock. So in a down market, you'll be able to buy more, and profit more when the market turns. If the stock goes over your target price... you're in the best of both worlds... you made the capital gain up to the target price, and then you also got paid for the call. Sure you don't get paid for the occasional skyrocket, but in reality... You'll always... ALWAYS do better selling the dream to someone else.

PS... You could do this strategy with other stocks, but you should ONLY do it with an ETF (for diversity sake) a volitile one (because you need more premium on the option)and ideally non-domestic (How DIVERSE is being invested in just the USA)

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