Stock Forex

After a company takes a big dip, the climb back up is volatile. Sometimes it stays down for a while and starts trading between a certain range. I call this rolling stock. If you follow my formula for a pure rolling stock play as outlined in the Wall Street Money Machine and at our live Wall Street Workshop, you’ll realize that $50 to $100 stocks don’t fit the formula. They’re priced too high. Your cash goes a short distance with an $80 stock. $8,000 buys 100 shares. Yes, a move to $85 would make you $500, but a $5 move on a $5 stock would also make you $500, but with only $500 tied up. A better example: $8,000 would purchase 1,600 shares of a $5 stock. A $5 move up would double your money. Upon selling you’d have $16,000—a profit of $8,000. Now to make it more exciting and still double your money (because there are many more companies at $80 which can easily go to $85 than there are companies at $5 which go to $10), let’s play an option.

The stock is at $80. You call your broker and buy the $85 call options, say two months out. You pay $1.25 per option and buy ten contracts for $1,250. The stock moves up to $84. Your option is worth $3.75. You sell for a $2.50 profit and make $2,500. Look at the power of leverage.

Options allow you to invest in the big stocks by proxy, using a small amount of money.

Look back at the chart on Motorola (page 90). Every time the stock goes down to $50 to $52,1 buy the $55 call option. I’m not hoping the stock goes back up to $100, though it would be nice, and I’m not doing this to buy the stock. I’m simply going to sell my $1.25 option for $2.50 or $3.50 when the stock rolls up. Another day, another week, another $10,000 profit.

Some stocks just seem to trade in a certain range (support at the bottom, resistance at the top.) Check out Ford (F). It rolls between $27 and $34. When it gets down to $27 or $28, I buy the $30 calls or the $35 calls if they are cheap. I sell them when the stock gets to $32-$33. Don’t get greedy. Get out, get your profits working better somewhere else. If it gets to $34 or $35,1 then buy the $35 puts. As it falls back to $30 or under, I sell them. This past year, this has been a bankable play.