{"id":102781,"date":"2017-03-02T11:09:57","date_gmt":"2017-03-02T16:09:57","guid":{"rendered":"http:\/\/countingpips.com\/?p=102781"},"modified":"2017-03-02T06:10:24","modified_gmt":"2017-03-02T11:10:24","slug":"use-options-to-turn-any-blue-chip-into-a-penny-stock","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2017\/03\/use-options-to-turn-any-blue-chip-into-a-penny-stock\/","title":{"rendered":"Use Options to Turn Any Blue Chip Into a Penny Stock"},"content":{"rendered":"
March 2, 2017<\/div>
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By WallStreetDaily.com<\/u><\/a> \"Use<\/p>\n

\"LouisIf you follow the financial markets in any way, you\u2019ve probably been fed the line that \u201cstocks are expensive\u201d right now.<\/p>\n

Indeed, by several fundamental measures, stocks are trading at a premium to their historical averages. Particularly in the United States.<\/p>\n

But in an ultralow interest rate world, in which savers earn next to nothing on their cash, that\u2019s to be expected.<\/p>\n

And following President Trump\u2019s stunning defeat over Hillary Clinton, stocks got a lot pricier.<\/p>\n

Many folks reading this column might think the boat has already sailed on the \u201cTrump Rally\u201d in stocks.<\/p>

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I assure you: The rally is just getting started.<\/p>\n

As I mentioned on Friday, historical data indicate that the market should continue its upward momentum<\/strong><\/a> in the coming months.<\/p>\n

And below, senior analyst Jonathan Rodriguez reveals a little-known way to generate big-time returns on \u201cpricey\u201d stocks and <\/i>reduce risk at the same time.<\/p>\n

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The Simple Strategy That Unlocks Massive Gains<\/h3>\n

\"JonathanMost investors know that the stock market is one of the best ways to generate wealth.<\/p>\n

But U.S. stocks have soared in a bull market for more than seven years. It ranks as the second-longest bull on record. And valuations have become pretty heady.<\/p>\n

Yet if you\u2019re on the sidelines waiting for a pullback to buy stock\u2026 you\u2019re missing out.<\/p>\n

The S&P 500 has gained 11% since Election Day, and the index hasn\u2019t dropped by more than 1% since October.<\/p>\n

Still on the fence?<\/p>\n

What if I told you that there\u2019s a way to sidestep buying pricey stocks, pull exponentially higher gains out of the market and reduce your risk \u2014 all at the same time?<\/p>\n

Well, that\u2019s exactly what options allow you to do.<\/p>\n

Options are perhaps the greatest \u2014 yet misunderstood \u2014 wealth-building tools available to investors today.<\/p>\n

Of course, you might have heard that options are risky or difficult to understand.<\/p>\n

Neither could be further from the truth.<\/p>\n

And over the next few weeks, I\u2019m going to show you just how powerful \u2014 and simple \u2014 options can be.<\/p>\n

So let\u2019s go over some basics\u2026<\/p>\n

Options 101: Breaking Down the Basics<\/p>\n

There are two types of options: calls and puts.<\/p>\n

Today, we\u2019re going to talk about call options.<\/p>\n

A call is simply a contract that gives an investor the right, but not the obligation, to buy 100 shares of stock at a predetermined price on a future date.<\/p>\n

The price is known as the strike price, and the future date is known as the expiration date.<\/p>\n

Easy enough, but why would an investor purchase a call option over shares of stock?<\/p>\n

For one, calls are a whole lot cheaper \u2014 especially when volatility in the market is low, like it is now.<\/p>\n

An option often trades at pennies on the dollar compared with the underlying shares.<\/p>\n

Call options also move a lot faster than stocks, so you can compress your time horizon for profits significantly.<\/p>\n

In addition, your downside is limited to the amount of money you paid for the calls \u2014 so you end up risking much less than you would buying shares outright.<\/p>\n

Let\u2019s take a look at an example\u2026<\/p>\n

Instantly Turn a Large Cap Into a Small Cap<\/h3>\n

Let\u2019s say that you think the price of oil is going to rise by the end of the year \u2014 and, as a result, lift oil stocks.<\/p>\n

I like Chevron Corp. (CVX) as a proxy for oil. It\u2019s one of America\u2019s largest integrated oil companies. And it\u2019s a very liquid company with a deep option chain.<\/p>\n

The stock has rebounded nicely off its 2016 low but still trades at more than 100 times trailing earnings \u2014 well above the stock\u2019s five-year average of 11.8.<\/p>\n

In other words, the stock is by no means cheap.<\/p>\n

But let\u2019s say you think Chevron will rise to $125 by year-end.<\/p>\n

Buying the stock at current prices would cost you about $11,200 before fees. You\u2019d net a gain of 12% if you\u2019re right about your forecast.<\/p>\n

Or you could go with a call option to purchase 100 shares. You\u2019d choose the option with a strike price of $125 and a Jan. 19, 2018, expiration date. That would cost you $395 ($3.95 option price X 100 shares).<\/p>\n

That\u2019s leverage of about 30-to-1.<\/p>\n

Ultimately, your option breaks even if the underlying shares hit $123.90 by expiration.<\/p>\n

And if the stock hits your $125 price target, you\u2019ll book a profit of 52% on the call.<\/p>\n

So buying the call option does three things:<\/p>\n

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  1. Reduces your cost basis of owning shares by 96%.<\/li>\n
  2. Multiplies your profit potential by at least four times.<\/li>\n
  3. Limits your downside to just $395.<\/li>\n<\/ol>\n

    Best of all, you avoid paying the hefty earnings premium on the shares.<\/p>\n

    Incredible, right?<\/p>\n

    Next week, I\u2019ll show you how to use put options to capture downside momentum. Stay tuned.<\/p>\n

    On the hunt,<\/p>\n

    Jonathan Rodriguez
    \nSenior Analyst, Wall Street Daily<\/i><\/p>\n

    P.S.<\/b> Did you know that some of the best performing stocks of the past 30 years \u2014 I\u2019m talking multibillion-dollar businesses like Apple, McDonald\u2019s, Google, Starbucks and Netflix \u2014 sometimes quietly re-list their shares as penny stocks\u2026 Essentially allowing everyday investors to \u201cturn back the clock\u201d and get in at prices from as far back as 30 years ago? You won\u2019t believe how easy it is to get PENNY-STOCK gains on some of your favorite companies. Click here for more information.<\/strong><\/a><\/p>\n

    The post Use Options to Turn Any Blue Chip Into a Penny Stock<\/a> appeared first on Wall Street Daily<\/a>.<\/p>\n

     <\/p>\n","protected":false},"excerpt":{"rendered":"

    By WallStreetDaily.com If you follow the financial markets in any way, you\u2019ve probably been fed the line that \u201cstocks are expensive\u201d right now. Indeed, by several fundamental measures, stocks are trading at a premium to their historical averages. Particularly in the United States. But in an ultralow interest rate world, in which savers earn next […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-102781","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/102781","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=102781"}],"version-history":[{"count":2,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/102781\/revisions"}],"predecessor-version":[{"id":102787,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/102781\/revisions\/102787"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=102781"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=102781"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=102781"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}