Insure Your Gains With Options

More and more investors are getting those nagging thoughts as the market trades higher — I like my stocks but earnings were so-so; What’s going to happen when QE2 ends? Will inflation bring a double-dip? Aren’t we due a sell-off?

Options trading investors know that options offer great flexibility. Now may be the time to use options as insurance to protect hard won investment gains. Buying a put on your long stock or ETF position can lock in a profitable selling price. And that put insurance can be pretty inexpensive when you consider the thousands you’ve got riding on the position. Or it may make sense to sell a covered call to gain premium and set a price for selling that one-time winner.

Our team of options experts looked at today’s market and found six trades using options as insurance. From Amazon (NASDAQ: AMZN) to Boeing (NYSE: BA) to Intel (NASDAQ: INTC), these trades may fit your portfolio or generate ideas on using options to protect your positions.

Please click through to find six trades using options as insurance.

Intel (NASDAQ: INTC)

By Chris Johnson and Jon Lewis, The Winning Edge

Few stocks have been as hot as INTC of late. Since blowing out earnings on April 19, the shares have surged well more than 10% to hit an 11-month high. The stock blew past the 22 level, which has offered resistance for most of the past year. In fact, prior to Tuesday this week, the last time INTC closed a day above 22 was in mid-May of last year.

But INTC remains well below the highs reached in most every year going back to the all-time high above 75 reached in 2000. So there’s plenty of upside room to run. With companies starting to spend on technology, Intel and the semis should be at the forefront of any rally.

While the stock should now receive support at the 22 level (areas of resistance often become support after breakthroughs), buying a put as insurance in case that support breaks down is never a bad idea. INTC puts are cheap as they have yet to reflect the stock’s recent volatility. Therefore, we recommend buying the INTC July 22 Put for less than 75 cents.

AK Steel Holding (NYSE: AKS)

By Chris Johnson and Jon Lewis, The Winning Edge

AKS has been a maddening stock to own … unless you’re a fan of trading ranges. From May through November 2010, the shares traded in a range bound by the 12 and 15 levels.  Since then, the range has bumped up to 14 and 17.

So it appears that patience may be the most important attribute for AKS investors. With materials companies likely to benefit from a strengthening global economy, AKS should bump up to another higher range. In the meantime, buying a put to protect against a drop to the lower end of the current range can add some income to your portfolio.

AKS reported earnings on April 26, beating on the bottom line but coming up short on revenue. In response, the shares shot up by more than 6% to the 17 level, which once again acted as staunch resistance.

We like AKS over the long haul but the pullbacks appear to be inevitable. You can smooth out the discomfort by buying an AKS June 16 Put for well under a buck, which will provide protection for moves below 16.

Boeing Co. (NYSE: BA)

By Sam Collins, Chief Technical Analyst, InvestorPlace

The second largest manufacturer in the world of commercial jets and third largest military weapons maker broke to new highs this week following a report of higher Q1 earnings with falling revenues.

But with military cutbacks from the defense agencies coming and the Fed’s challenge to the company’s right to build aircraft in South Carolina it may be time for investors to take some insurance out on a possible pullback. Holders of BA, now around $78, could sell the BA June 18 77.50 Call, for better than $2.00. If the stock closes higher than $77.50 holders will have the stock called away at a price higher than the current market. That’s in addition to pocketing the premium. If the stock falls then holders are protected to near $75.00.

McDermott International (NYSE: MDR)

By Sam Collins, Chief Technical Analyst, InvestorPlace

This designer of constructor of complex offshore oil and gas rigs has been awarded a Chevron which is considered a “foot-in-the-door” which could lead to sizable awards down the road.

MDR has rewarded holders this year with an advance from around $20 to a high of over $26. Credit Suisse has an “Outperform” rating on the stock with a 12-month target of $31. Technically if the stock can break and hold above its 20- and 50-day moving average at $24.25 it should run to $30 plus within three months. But it is below these moving averages and thus in a short term downtrend.

Buyers and holders of the stock, now at around $23 could protect their position buying an Aug 20 23 Put, for around $1.00. This would allow them to sell the stock at $23 even if the stock is lower — though they would lose the premium paid for the put. Holders of the stock may want to sell the MDR Aug 20 24 Call for around $1.50. This protects them if the stock declines to $22.50 and if they stock is called they would pocket the premium. They would also sell MDR at about a $1.00 higher than the current market price.

Apple (NASDAQ: AAPL)

By Michael Shulman, Editor, Short-Side Trader

Apple — The great company and stock of your time is Apple. Now sporting the second largest market cap in the world, the stock is weighed down by the cap and analysts who keep viewing AAPL as a “consumer” company that cannot sustain growth and for this reason a company that doubled in size during the Great Recession and grew 70% year over year – that is not a typo – is now selling for less than the market. The way to play the long term potential while admitting the market may take a while to catch up is to own the stock and sell covered calls. The premiums on AAPL calls are excellent — I would look to sell the AAPL June 375 Calls for $3.00 or better.

Amazon (NASDAQ: AMZN)

By Michael Shulman, Editor, Short-Side Trader

AMZN — Another totally misunderstood company and stock, the online retailer had Q1 revenues of almost $10 billion — with a B — and is heavily reinvesting to continue to increase revenues. The Street is worried a bit, you should not be. Buy the stock and write the call, playing the long term potential of the company against the short term idiocy on Wall Street. Look at the AMZN June 200 Calls.