What now?

This is a question I've been asking myself over and over. I've talked about the wisdom of cash many times on this blog, so I won't beat that horse to death anymore. Everyone and their brother has piled into gold. While, I still think that gold is going higher, there's nothing particularly insightful about that call. When I say hide, what do I mean? Do I mean a place that will result in a)no losses or b)capital appreciation? That would be nice, but my crystal ball isn't that powerful. Should you go with the 6 stocks featured in this article or solid consumer staples? That might work, but the most probably scenario for that is losing less than the rest. That's not a bad ending to this nightmare of a market for sure, but you can do better. It may seem riskier, but it's not. I think that you need to look to the option markets, LEAPS specifically. Warning: this is a strategy for the patient.

Now I'm not recommending that you purchase options if you know nothing about them. Please spend the time and money to learn about some simple strategies first. Options are priced differently than stocks and a whole host of factors go into their price with which plain vanilla equity investors usually aren't familiar. There are many strategies. Don't feel that you need to master them all or even more than one. Find the one that you understand best and works best for your personality. Also, don't think that you are prepared to trade them once you've read a book, attended a seminar, or completed an online tutorial like the one the Options Industry Council(OIC) offers on CD. Instead, do some dummy trades via optionsXpress or some other site that allows virtual options trading.

Now, you're real education will begin. You're about to learn a lot about yourself. Committing real money is thrilling, scary, and hopefully educational. Start with a small percent(less than five percent) of your portfolio. Be prepared to lose it all. Establish clear rules about when you will enter and exit trades.

Why options? Well, I'm willing to put money at risk because I think that some very good companies are being given away for dirt cheap. Options allow me to participate in the upside, while restricting my losses on the downside in terms of total dollar commitment. I want to buy beaten down blue chips, stocks like PG and GE.

In my next post, I'll write about a trade possibility.