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If you can think back to grade school science class, then you may remember Isaac Newton’s first law of motion: “An object in motion stays in motion.”
The full law is actually a bit longer than that, but in essence, it describes inertia both resting and moving. Or, in layman’s terms, an object tends to keep doing what it’s been doing.
Now you may be wondering what the heck this has to do with trading…
And the answer is – EVERYTHING!
You see, stocks in motion tend to stay in motion, giving them the potential to drop some big profits into your account – and fast.
The key to making those profits is finding the best stocks that are moving the most.
And here’s how you can do just that…
How to Pocket 327% on ZBH Using This Momentum Play
Newton’s full first law of motion states:
“An object at rest stays at rest and an object in motion stays in motion unless it is acted upon by an unbalanced force.”
Whether driving a car, playing a game of pool, or even trading, we all know this to be true.
Stocks at rest (not moving) tend to stay at rest, and stocks in motion tend to stay in motion unless acted upon by an unbalanced force. In the markets, this “force” is buying and selling enthusiasm, or volume. When volume is
low, stocks tend to stay at
rest. When volume is
high, stocks tend to get and stay in
motion.
There are three main catalysts that can create sudden spikes in momentum in a particular direction:
- Earnings announcements are easily the most consistent and predictable force that moves stocks.
- Big news announcements can move a stock suddenly – and keep it moving.
- Industry trends also apply force to stocks within the industry.
Now, the way to play these stocks in motion is to simply hop on for the ride and grab profits before a force slows, stops, or moves the stock the other way. I like to look for stocks that have been in motion and moved at least 10% over seven trading days.
Here’s an example on Zimmer Biomet Holdings (NYSE: ZBH):
ZBH rose 10.79% over seven trading days before its earnings announcement on February 1, 2019. This occurred on a spike in volume (what we like to call enthusiasm), underlining the power behind the move.
Now, stocks don’t keep moving forever. So, I like to use a short-term option trade to grab profits within 30-45 days or sooner.
On February 1, 2019, a great bullish short-term trade was the following long call spread:
Buy March 15 $120 Call $1.70
Sell March 15 $125 Call $0.53
Net Debit $1.17
For one contract, the total cost of this trade was only $1.17 – that low price is one of the reasons I trade options. And for such an affordable price, this 42-day trade was providing a potential 327% return!
ZBH continued this upward movement, rising 6.3% over the next seven trading days. By the spread’s expiration on March 15, 2019, it had risen a full 8%.
With the stock closing at $126, the entire long call spread was sold for maximum value of $5, yielding a net profit of $3.83.
That’s more than a 327% return in 42 days!
Is it a fluke?
Not at all. These opportunities are everywhere – if you know how to find them. I use a scanner to find what stocks have moved the most over the past seven days. Here are the biggest movers in the S&P 500 as of April 23, 2019:
Over the past seven trading days, all of these stocks have moved up at least 10.71%.
So, how do we trade them?
We buy an out-of-the-money (OTM) long call spread. For calls, OTM means that the strike price is greater than the current stock price. For example, if XYZ is trading at $49, then buying an XYZ $50 Call and selling an XYZ $55 call would create an OTM long call spread.
Now, if you simply bought
ZBH stock, your return would be a lot less – and it would take a whole lot longer than 42 days. That’s exactly why we trade with options. Once you see them in action, you just can’t pass up the massive increase in potential returns!
Tomorrow, I’ll show you how you can trade this way every single week in a special, live event.
But unfortunately, I can only let a small numbers of readers in on this…
So if you want the chance to learn how you can earn consistent income every single month, I suggest you click here to learn how to gain access now.
Good trading,
Tom Gentile,
America’s #1 Pattern Trader
