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Bear Spreads for Growth Stocks

June 9th, 2014

We often get asked how an investor can join the growth stock bandwagon when growth has already occurred. Good question. We believe that every investor can take advantage of both a bear and a bull market if they play it smart. And here is what we mean by playing it smart: take the short position to limit risk and use more than one fundamental variable to rank stocks that you invest in.

Bear Spreads for Growth Stocks

Bear Option Spread

To take the short position, we suggest you purchase a bear option spread or a put option when you invest in growth stocks. Both stock strategies will allow you to carry less risk and sleep better at night. Purchasing a bear option spread gives you the opportunity to simultaneously purchase and sell two of the same or closely related future contracts. Alternatively, purchasing a bear put spread positions you well for a possible decline in the price and allows you to purchase bear put spread options at a specific strike price while also selling the same number of puts at a lower strike price.

Compare Multiple Fundamentals

To determine which growth stocks to invest in depends on you looking at multiple fundamentals of a given company and asking yourself?

  • Is the company selling more of its products and services at higher and higher profits?
  • Is the company continuing to innovate and adapt to market demands, whereby securing their leadership position?

Then we suggest you look at other fundamentals, such as a company’s positive earnings revisions, sales growth, operating margin growth, and earnings growth. Followed by looking at their return on equity, which is a key measure of a company’s profitability. (The higher the number, the more profitable a company is.)

Good luck—and feel free to contact us directly for more tips!

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