So how to play the rally? Voldemort has you covered, with Deeps no less.

I want to invest in the breakouts. They are the referendum, the stocks that are working and will continue to work now that the selling squall has been put behind us. I like to own in-the-money calls on them, half a position only, and then wait for some media-inspired wrong-headed bear move that gives you a chance to buy the rest.

So you go buy deeps, out three months, on any of these names:

Caterpillar (CAT)
Deere (DE)
Alcoa (AA)
Conoco (COP)
Chevron (CVX)
Intel (INTC)
Cisco (CSCO)
Amazon (AMZN)
Texas Instruments (TXN)
Schlumberger (SLB)
Johnson Controls (JCI)
Air Products (APD -)
Freeport-McMoRan (FCX)

And why buy these?

Get comfortable with some of them. They are going to take us to the next level.

Yep, as they say in Spinal Tap, these are going to 11.

OK OK, let's get serious. These are all names that have done very well. And there is nothing wrong with playing them on the long side. I'd way sooner buy a package like this than one of Lenny's "famous company where the stock acts lousy" plays.

BUT, you need a stop discipline, particularly if you are going to go into hot names. And particularly if his strategy is to buy half now and half into a dip. In all likelihood you are going to end up with 1/2 positions on the winners and full positions on the losers.

And Deeps CAN make it safe, but it depends how you use them. If you convert them all to their equivalent stock positions, and allocate resources accordingly, then yes, they limit your losses.

If instead you use them simply for the leverage they afford, then quite the opposite.

In other words, let's assume we have $200,000 to allocate, and we'll divide it equally among 10 of these names. Let's take JCI, and use the Oct 110 calls. They have an 80 delta, so the proper number of calls to buy in this example in order to own the stock euqivalent of $20,000 is 2 (actually a smidge over, but I'll round) . But actually, that's not even correct, because he wants you to buy half. So you could only buy 1 of them.

If you only look at the actual price of the calls, you can altimately afford 13 of them for $20,000. Which is great. If the stock lifts. But it's leverage on steroids, and a relatively small stock dip would wipe you out (a 5% drop in JCI would wipe out 1/3 of your JCI call value, for example).

So yes, these stocks all look great, and Deep Calls are fine, just use their safety edge, not their leverage edge.