How do you play this kind of thing? Simple, you develop your favorites and when the market gets oversold -- as defined by minus 5 on the oscillator -- and when fear gets extreme -- a plus 40 on the VIX and sentiment of 40 bull or below on the Investors Intelligence poll -- then you buy calls, preferably deep in-the-monies coupled with out-of-the-monies on your favorites, usually out three or four months. Then when the stocks rally, you put out common against your favorites on a scale and you just keep doing so until you've laid off common against both strikes effectively. At what feels like the top, you sell your most pumped out-of-the-monies as they should be at-the-monies, and then you are set for the next decline.
