What strategies can investors use to profit from the “Income Tax Bounce”?
Basically investors need to use a strategy that takes advantage of a dip in the market as a time to take a hedged position in a stock then as the market heads back up, you cash in that position to reap some profits. Here are three strategies that can be used: — Buy the stock This is the traditional way people participate in the markets. The problem is that this is capital intensive (you need a lot of money) and if the stock falters, you could lose big. — Deep-in-the-money covered call With this strategy you buy the stock then sell a call option with a strike price much lower than the current stock price. You can typically make from a 5% to a 10% return over 60 to 90 days. You protect yourself from a drop in stock price but you still need to put out the money to buy the stock. If the stock drops drastically, you may get stuck with devalued stock. — In-the-money Bull-Call debit Spread With this strategy, you buy a call option on a stock that is below the current stock price then sell
