A Simple Key To Stock Options Gains Of 306% And 122%

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Our own small-company specialist, Robert Morris, has found a way to 'sniff out' tiny penny stocks on the verge of a major breakout.  And the timing for this has never been better.

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We've seen some stocks gain 852%... 5,450%... even 17,496% in no time flat.

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Here’s the key for option traders.  Only target stocks with BIG momentum.

Why is momentum important?  Because the options we buy always have a built in time limit.

Once you’ve found a stock with momentum, picking an option with the correct expiration date can make or break your success.

Remember, when buying an option, you’ll always pay more than what the option is intrinsically worth.

For example, a call option with a strike price of $25 on a stock price of $30, has an intrinsic value of $5 ($30 - $25 = $5).  But the option itself may cost $7.  The extra $2 is a time premium.

As time goes by, the time premium sinks; it’s known as time decay.

The closer you get to the expiration date, the faster the time premium disappears.  And in the 30 days before expiration, you’ll see the most rapid decline.

Needless to say, keeping time decay to a minimum has a huge impact on the success of any long option strategy.

Let’s take a look at an example.

Last year, tech stocks were building fundamental momentum.  And the semiconductor giant Intel (INTC) is no exception.

From listening to Intel’s management, watching industry trends, and using technical analysis, I was convinced INTC was heading higher.  I recommended the INTC October 2009 $16 call options on May 13th of 2009.

Here’s a chart of what happened next.


You can see INTC ran from $15.12 to a high $21.27.  That’s a gain of 40% over five months.  But over the same time, the option rocketed up to a 306% gain!

After an incredible five month rally, INTC’s momentum had cooled off a bit.  But the momentum behind tech stocks was just getting warmed up. So I kept an eye on INTC for signs momentum was once again building.

That day came a little over a month ago.  On February 11th, I recommended the INTC July 2010 $20 call options.

Here’s what happened next.


You can see INTC is up 15% from $19.69 to $22.75 in a little over a month.  Our option’s already hit a peak gain of 122% and we still have four months left until the option expires.

In both cases, I chose an option with about five months until expiration. Based on my analysis, it was enough time for the momentum to move the stock before accelerating time decay cut into profits.

Its explosive gains like the 306% and 122% on INTC options that will always make options part of my trading arsenal.  And you too can harness the power of options.  Just remember to trade options on stocks with momentum and to give your options enough time.

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