Does cramer know what he is talking about here? Oil Stocks Become Options Paradise By James J. Cramer RealMoney.com Columnist 9/2/2005 11:02 AM EDT Click here for more stories by James J. Cramer Options paradise, these oil stocks. It's now to the point where you want to be long calls, short common on these stocks. They have become too dangerous to own outright, too dangerous and volatile, but if you buy some deep calls and short some common against them on a ratio -- still leaning toward long because the estimates are too low -- I believe you will win on days like today and Thursday. You have to understand that the way to play volatile markets like this is to play both ways, or "boat ways," as the argot used to be. Let's take Exxon Mobil (XOM:NYSE - commentary - research - Cramer's Take) as an example. You go out to the January 55 calls, there isn't much premium, so you take down 500 of them. Then, every time the common spikes, you sell a little common against the calls. You buy it back on days like today, but you don't buy it all back, keeping some short common on for downgrades and for the inevitable plunges in refined, even as crude stays high. The worst that could happen is that Exxon blows below $55 and you have a call with a ton of value and a free put. The best that could happen is that the stock keeps climbing and you lock in progressive gains, even selling near-term 60 calls against the deep Januarys if you want to. Positions like this were a mainstay for me back at my hedge fund every time oil stocks got too volatile -- or when any stocks got too volatile, frankly. If you need help on this, let me know, and I will do more on it. But if you wanted to know how I outperformed in volatile markets like these, it was long calls, short common all the time! Oh, and don't forget, you get the short interest rebate on the short common, which, these days, with short rates going higher, is just plain gravy!