I’m a stock trader.
I target names that are breaking out and surging.
The ones with strong momentum and the ability to deliver big, fast gains.
But some stocks almost never make big moves.
You can’t make Tesla-sized profits on slow-moving names like Walmart (WMT).
At least not the traditional way.
But you can with options.
Stock options are a way to increase your leverage.
They are a risk-defined bet that a given stock will go up or down.
If the call costs $200, that’s the most you can lose.
But the potential profit is unlimited.
Sure, they have their limitations.
Options are not right for every situation.
But used correctly, they can turn a 5-10% move into a triple-digit gain.
Let’s Look at an Example:
This is Deere (DE)…
The tractor king more than doubled over the last 12 months.
But the stock is now showing signs of exhaustion.
Shares breached the 50-day moving average for the first time since May 2020.
Volume is spiking on a move lower in price.
The Money Flow Index (MFI) is approaching the 50 mark.
And the stock is within a few bucks is the 100-day moving average.
If that level is breached, DE could easily fall by $50 or more.
50 dollars sounds like a big move.
But on a $350 stock, it’s only worth 14%.
So how do you turn this into a bigger win that could really move the needle?
Put options.
Specifically, the DE Jul21 $330 puts (.DE210716P330).
Buying this option is a bet that Deere (DE) stock will go below $330 a share by late July.
We don’t have time to go into why I selected that option.
I’ve taken into account the implied volatility, days to expiry, option delta, and other factors we can cover another day.
But let’s break down the trade…
Risk should always be considered first.
These are options.
Options are risky.
You can lose the full amount you invest.
These put options trade for around 5 bucks apiece – or $500 per contract.
So, I would only consider this trade if I was willing to risk at least $500.
My trigger would be $349.00 per share.
I would need to see DE below that price to get me in.
My target would be $303.00 – the next high-volume area where the stock could find buyers.
That’s a move of $46.00 per share.
The $330 put options would be “in-the-money” by $27 at that point, giving them a value of at least $2,700 per contract.
So, you’d be risking $500 to try and make a little over $2,000.
The setup looks good.
The risk/reward is strong.
And if most of your positions are long, it wouldn’t hurt to get a little exposure on the short side.
It might not work out.
Or it could 5X your money next month.
Nothing is guaranteed.
Control your risk.
Maximize your gains.
And remember… stocks surge up AND down.
And to get a handle on finding the right stocks for option trades that are surging, you need to read my special report free for subscribers to my Traders Daily Direction: The Magic of the SSI Indicator. To download and read it for free, click here.
