Options Trading: How To Generate
Gains Of 550% Trading Options
The Dynamic Wealth Report
December 21, 2010
by Corey Williams, Editor
Christmas is here. It’s the most wonderful time of the year. (Channeling
my inner Andy Williams…)
According to the National Retail Federation, one of their “Top Ten
Holiday Trends for 2010” is giving gifts to… yourself?!?
That’s right, self-gifting is projected to increase 8% this year. More
than 57% of gift buyers will splurge on a little something for
themselves this year. So much for this being the season of giving…
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Now if you’re anything like me, your Christmas wish list is pretty
short. I know I’m not dying to get my hands on any of the new gadgets or
gizmos this year.
Instead, I’m going to treat myself to a few speculative options plays. I
know I’ll get more enjoyment watching an option double, triple, or more
than I will from anything I can buy at the mall.
Simply stated, I love to see huge winners in my options account.
With the stock market running wild on a Fed induced liquidity binge, tis
the season for call buying. I mean the market’s jumping like a 5 year
old kid on a sugar high!
Now, if you’ve never traded options, I’m sure you’re wondering what I’m
talking about.
In short, buying a call option on a stock gives you the right to buy 100
shares of the stock from the seller of the option at a certain time (the
expiration date) for a certain price (the strike price).
Buying call options is a very simple option trade. It’s a lot like
buying a stock. When you buy a call option, you want the stock to go up
in price. The main difference is call options allow you to control more
shares of stock with less money than buying the stock.
Let’s take a look at an example…
A few months ago in my Elite Option Trader service, I recommended buying
call options on Pegasystems (PEGA). More specifically, I recommended the
March 2011 $25 calls.
The call option gave us the right to buy 100 shares of Pegasystems stock
at $25 anytime before the option expired on March 18th. As the buyer, we
paid a fee (called a premium) of $185 per contract.
Here’s why I love options…
In the simplest of terms, if the stock doesn’t go up, the most you can
lose is the initial $185 investment. So your risk is strictly limited. But if PEGA’s stock goes up in value, so do your call options.
The best part is the percentage gains on the option blow away the gains
on stock. This is due to the leverage you get with an option. Remember,
each call option controls 100 shares of the underlying stock.
Since I recommended buying call options on PEGA, the stock is up an
impressive 76%. Not too shabby. But our call options have rocketed to an
eye-popping 550% gain…
Now that’s the kind of self-gift I have on my wish list!
To be perfectly honest, buying calls and puts isn’t something I reserve
for holidays. In fact, options are a staple of my speculative portfolio. But in keeping with the self-gifting theme sweeping the nation this
year, I’ll treat myself to a few more this holiday season.
If you’d like to get in on the action, I’ll be rolling out another
option play in the Elite Option Trader soon,
click here for more
details.
As usual, the IPO market is going into hibernation for the last few
weeks of the year. A record number of Chinese companies listed on
American exchanges in 2010. In total, 38 Chinese companies raised $4
billion in the US IPO market this year.
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