Thursday, January 15, 2009

The Only No-Risk Way to Ride the Next Big Market Pop

By Andrew M. Gordon

Your next big investing dilemma is right around the corner. Should you - can you - take advantage of the next big stock market pop?

History (since WWII) tells us that when the S&P 500 bottoms, it'll go up about 32 percent over the following nine months. That's been the average climb following a bear market.

Here's the problem. It usually happens in bursts. And if you're not in the market for the initial burst, you've probably missed snagging the biggest gains.

The solution? Market Index Target-Term Securities (MITTS). The irresistible feature of these investments is that you can't lose money. They're hybrid securities - part bond and part options. They go for $10 per share (when first issued), and are traded on the New York Stock Exchange and the NASDAQ.

You can buy MITTS that cover the S&P 500. If the S&P goes up, you get 100 percent of the gains. If, for example, the S&P goes up 40 percent during the life of the MITTS, your gain would be 40 percent. (They last 3-7 years, but you can get them maturing as soon as May 2009.)

What if the S&P loses 40 percent? Your loss would be zero. You automatically get back the $10 per share at maturity. And, right now, all the active MITTS are trading at a discount - for as low as $8.84.

It's a zero-risk way of playing the next big market bounce. MITTS are easy to look up, because The Wall Street Journal tracks them. They're also highly liquid. So if you're interested, your broker can buy them for you. No problem.

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