Jim Cramer's "Mad Money" ranks among the most popular stock investing shows on television. With an audience of millions, Cramer can bounce the price of an individual stock by giving it the briefest of mentions on his evening broadcast. If you're a speculator willing to take a risk with your money, you can play the "Cramer effect" by doing some quick short selling. If you're a serious investor, however, take Cramer's advice and do careful research on any stock you're considering.
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Set up a margin trading account that's authorized for short selling. By federal Regulation T, you must have a minimum of 150 percent of the trade value in the account when you short stock. The extra cash or leverage covers any loss you may suffer in the trade. In a short sale, your broker needs to borrow securities to furnish the stock to the buyer. Eventually, you'll need to close the trade by buying the shares back. If the price has fallen, you'll make a profit.
Navigate to The Street website, where Cramer's daily picks are laid out in a simple table under the heading "Exclusive Mad Money Stock Screener." For each stock listed here, the table gives the full name of the company next to the ticker symbol. The "segment" column that appears next refers to the context in which the show covered the stock -- as a featured stock, discussed stock, caller's stock, guest interview stock, lightning round, game plan, mail bag or sudden death. You can filter the results by segment; if you only want Cramer's featured stock for the day, make the selection under the "Segment" pull-down menu on the right of the chart.
Check the Recommendations
Pay close attention to the "Call" column. If a red "down" arrow is showing, the coverage was negative and "Mad Money" is recommending you sell, short or avoid the stock. A green "up" arrow means you should buy or accumulate the stock. Next door is the current price. You can also filter stocks by industry and by price; by setting an upper limit on stock price, you can concentrate on cheaper stocks that tend to make bigger moves, in percentage terms, than more expensive shares.
Viewing and Trading
Watch "Mad Money" in the evening and note the stocks featured on the show. Generally, these featured stocks will draw higher-than-normal investor interest on the day following the show. According to analysis by some market watchers, this well-known "Cramer effect" moves share value temporarily, usually without any significant news or financial results from the company. Short the stock on the price rise, and set a stop loss to prevent a heavy loss if the stock should continue to rise.
Wait for the stock to fall in value as the momentum investors, along with disappointed or impatient "Mad Money" viewers, sell their shares and wait for the next hot tip. This may take place later in the day or in a few days. In any case, your strategy dictates a quick turnaround rather than a "short and hold." Your goal is to pick up a small profit frequently and not aim for a major drop in share price. Short-term trading rarely pays off for small investors, who don't have the speed, flexibility or resources of institutions and professional traders. In his book "Mad Money," Cramer instructs readers looking for investment gains to read research reports and financial statements before buying in and to give any company under consideration at least an hour a week of your study time.