Here are the basic elements of the strategy with an example. This past March UNH gaps down from the mid-40's to the high 30's and I bought around $39. At this point the stock is basically a falling knife so I'm just buying a starter position. I know I want to own the stock but I don't want to find the thing gap down 15% and put in a huge reversal the same day and leave me on the sidelines with no purchase so I buy the stock and buy the puts and hedge my position as close to 100% as possible. If the puts show me a profit I will take them and then buy more of the stock with the profits from the put and possibly with more capital, depending on how the chart unfolds and the valuation at the time. Then, if the stock becomes more bearish, or the market becomes bearish, or both, I will buy more puts to hedge the current position but at this point my hedge will be less than 100%. Theoretically, the lower the stock goes the lower the probability it will keep falling. I will keep repeating this strategy until I think the stock has bottomed and when it finally turns I will no longer hedge my risks. The weaknesses: You can put on a hedge and the stock does nothing but go up and you miss out on the profit or you can misjudge the additional downside and have too small a hedge on and the market runs away from your average price. Or, the stock can go sideways and you suffer time decay on your hedge. This strategy isn't fool proof and I've totally butchered it but if you pick the right stocks you tend not to get hurt badly when you mess it up. I wouldn't ever do something like this on a stock like RMBS or QLGC, or AMZN. It has to be a Warren Buffet or Peter Lynch type stock that you plan on owning for many many years. For some odd reason Wall Street tells you about using stops to manage risk. JMHO...that's the absolute worst way of managing risk. Buying fundamentally sound businesses at low valuations and managing risk thru options and/or money management is the way to make money in the stock market. Using stops will just ensure you'll succumb to randomness. People just put too much emphasis on timing. Watch what Buffett does when he buys a great company and it goes much lower --->>> He buys more! Maybe I should teach him how to use options