A Case Study on the Power of Options
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The world’s most valuable company, Apple, Inc., was added to the Dow Jones Industrial Average in March 2015.
With all the company has accomplished, the future is burning white-hot for Apple. Legendary investors like Warren Buffett and Carl Icahn believe Apple stock is undervalued by as much as 60%. This means the stock could trade as high as $200 a share.
How can you take part in the opportunity to generate a massive profit without having to pay the high price per share, and at the same time control the risks of stock ownership?
In this report, I’m going to show you, step-by-step, how I’m able to double my money in 27 days on a trade that’s easy to execute, and more importantly, relies on a pattern established over a 10-year period.
Think of how much money you can make if you had a way to crunch hundreds of thousands of data points on a stock, to reveal it has a track record of moving a certain amount of points, AND the amount of days that expected run is likely to take place.
No doubt, having a situation where proven results of past stock moves predicts the possibility of a future move is a virtually invaluable piece of information to have…
…and I have it.
In fact, I have a suite of tools that allows me to zero in on a stock’s share price not only to find how high it moves … but when it moves and how long that move lasts. I use these tools every trading day of the week to double my money. And it’s all done with the click of a mouse.
But that’s not all. It also allows me to know without a doubt the amount of risk involved with every trade.
So how it possible to double your money on well-known stocks like Apple without buying shares? Well, the simplest way to make money on the anticipated move higher of a stock without owning shares is with a Call Option.
A call option is a contract between a buyer and seller that gives the buyer (YOU) the right to buy the stock from the contract seller (SOMEONE ELSE) at a specified price for a specified amount of time.
Now, you have to know a few things in order to pick the right options strategy. This involves your target price, your target timeframe, and if the price of the option is cheap or expensive.
The goal of buying a call option is NOT to exercise our right to buy the stock at the agreed upon or specified price. We use this strategy with the intent to buy the option contract at one price and to sell it at a later time, before the option expires, at a higher price.
When the stock goes up in price the right to buy the stock at the (lesser) agreed upon option price becomes more valuable, therefore the option contract’s price itself ALSO goes up in price.
The key thing to focus on with options is they expire, so you want to trade an option knowing the anticipated price run of the stock and what date – or in what time frame – this price run should happen.
Having that kind of information makes doubling your money a cinch. This is where I use my proprietary market tools.
The first tool I use is my Money Calendar, which allows me to find high probability trades that have been backtested over 10 years and have proven to be successful 80-90%% of the time.
In this example, or case study as I call them, I’m going to show you how buying a call option on Apple instead of buying shares of the stock leads to a 100% return.
A 100% Return Using Options
Here is a screen shot of the Money Calendar, which shows the day of the week stocks will either rise or fall in share price.
Green means on that day, most stocks will be bullish. Yellow is neutral and anything in red means the share prices will fall (remember this is based on 10 years’ worth of historical data):
Once I know which day the movement will occur, then I look for a trade opportunity. This next chart shows me the number of days involved, and the probability the move will happen. In this example with AAPL, the Money Calendar showed me that a small move in the share price could produce a 100% return.
I’ve labeled each of the five critical components of information:
- AAPL Ticker
- Looking for trades starting in the next 10 days
- 10-yr. backtest
- List of results (how many days the run took and % of time profitable)
- Another list view of results
What this tells me is that during the month of April, for 29 days, AAPL stock has made an average profit or point run of $3.38. (This data is calculated on a per-share basis.)
The total number of trades is 10 (representing 10 years on the trading date) and winning trades is a total of eight. This is the view with ‘Details’ (5) selected:
When I hover my mouse over each individual bar, it populates the profit/loss for that year. You can see not only the amount of profitability per year, but also gauge if the profits are consistent and happening in more recent years or in the back part of years under review.
AAPL shows the last two years have been quite good, and I anticipate the positive momentum continuing…
How This Information Turns into Money:
Remember, the perspective on this AAPL move is not the longer term $200 price everyone – including Warren Buffett and Carl Icahn – believe will happen. I’m using the real historical data to tell me what will happen to the share price.
In this case, I’m looking at the past three years. The average profit run starting in the month of April is $7.74, as you can see in the graph below:
Knowing how much the share price moves, when it moves, and how long that move lasts, I can pick the option that gives me the greatest return in the least amount of time. The option I used for this case study trade was the AAPL May15 Week 5 125C, as shown below:
At the time this trade was made, the price for the call options (shown below is the price in the middle of the bid/ask quote) was $4.85. That’s significantly less money than paying $200 for each share.
Our pricing model shows AAPL only needs to get to $134.60 to double, as you can see below:
…And Then Reap the Powerful Benefit of Our Pattern
Remember, we’re talking about a small move in the share price in order to double our money. And since the Money Calendar showed us that Apple moves up in price during the month of April, we know this type of trade produces a 100% return.
That’s the power of options. Most investors would find it difficult to make 100% on AAPL in 27 days. Why? Because they’ll simply buy shares of the stock hoping it will run up to over $250 per share over the same period.
Of course, you can make a tidy little profit on that strategy, but it’s virtually impossible to do so in such a short time frame and with so little out-of-pocket money.
Indeed, it is the power of options gives us our huge return in such a short period.
And for far less money too!
Just take a look at the stock versus option comparison below, which shows the dramatic difference in returns:
|AAPL Stock Purchase|
|Entry cost $125.15||AAPL May15 Wk5 125 Call: Entry cost $4.85|
|100 shares = Cost $12,500||1 Contract (100 Shares) = Cost $485|
|With Target $135 Reached|
|AAPL: Profit +$7.74||AAPL May15 Wk5 125 Call: Entry cost $4.85|
|$7.74 x 100 = $774||$4.85 x 1 contract (100 shares) = +$485|
|ROI: 6.2%||ROI: 100%|
This is just one example of how you can double your money on over 250 of the top stocks and ETFs in the market. In Power Profit Trades, I’ll share more trades like this with you, showing you how they work, what type of option to buy, and how it’s possible to earn a 100% return in under 30 days.