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How to Beat the Market: 2 Short and 3 Long Short-Term Plays

Short-term declines can't offset long-term gains


The short-term view of the market depends on technicals, earnings and Greek bailout talks. It depends on the current run on Italian bonds; it depends on how badly Majority Leader Eric Cantor wants Speaker of the House John Boehner’s job; and it depends on how the ratings agencies will really react in the lead up to the Aug. 2 debt-ceiling deadline.

You get my point.

The bottom line is that we will be in a trading range for at least another month, with earnings and Fed-driven liquidity fighting the bearishness of the Greek and U.S. debt debacles. That range is a pretty big 1,250 to 1,350 on the S&P 500, and the bias is shifting to the downside.

So where should you invest? Here are two short-side trades and three ideas to go long that make sense to me now:

Short Side Investments

Apollo (NASDAQ:APOL) August $35 Puts (APOL 110820P00035000)

This online educator (operating as the University of Phoenix) is worth $20 a share, tops, once federal regulators catch up with its abysmal graduation and loan-repayment rates. I thought that would have been clear by now, but even if it is, ferocious lobbying has prompted some congressmen to get in the way of the Department of Education’s crackdown on online universities.

Barring a market crash, or major negative headlines, we won’t get to the $35 strike price. This position is a “Hold” for now.

Bank of America (NYSE:BAC) August $11 Puts (BAC 110820P00011000)

The stock is fading fast. It’s just punishment for the company that bought Countrywide and Merrill Lynch–and in the process inherited all their problems. This morning’s edition of The Wall Street Journal had a piece about the deterioration of the company’s core capital due to increased loan loss reserves and a settlement(s) of mortgage issues.

Long Side Investments

Corning Inc. (NYSE:GLW) August $22 Calls (GLW 110820C00022000)

GLW is a pure play on the iPad and the tablet market. I believe the sell-off in the stock has been the result of profit taking–the same is true for the stalling and sell-off in Apple (NASDAQ:AAPL) shares.

If debt-crisis bearishness can combine with a great Apple earnings report–and it will be great–GLW has a chance to pop. [Apple reports in a few hours…better get cracking–Editor.]

Will it get to the $22 strike price? Odds are against that happening, but the calls could rise quite a bit. These calls are at two pennies, and they’re the ultimate long shot.

Lowes (NYSE:LOW) October $25 Calls (LOW 111022C00025000)

This is a longer-term position that I believe will pan out. When people can’t or won’t sell their homes, they maintain them–from paint to carpet. The stock took a hit with general concerns about the economy and spending, but I believe Lowe’s earnings will surprise traders.

Peabody Coal (NYSE:BTU) January 2012 $75 Calls (BTU 120121C00075000)

Why this company sold off so far and so fast is still a mystery to me. World coal consumption continues to rise, and several major users of nuclear power are rolling back their use or walking away from nuclear energy as an option for generating electricity.

We are a long way away from the strike price, but I’m keeping it open for now. The stock is oversold and in the coming months should rise, pulling our calls up.

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