Self-preservation would stop you from trying to hop into a speeding car. You always hear the phrase “don’t try and catch a falling knife.”
You see people treat stocks the same way. Whenever stocks are heading up or down at high speeds, investors get intimidated and indecisive, unsure of whether they should buy or sell, always looking for the right spot. Before they know it, the opportunity for gains has sped right on by.
I’m going to show you today that that motion and speed is nothing to be afraid of. It’s momentum, and it’s actually incredibly profitable; it can put big money in your pocket repeatedly – IF you find the right stock headed the right way.
That’s where the Money Calendar comes in. For finding those big, profitable momentum plays, there’s nothing better…
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Make Sir Isaac Newton Your “Co-Pilot”
“An object at rest stays at rest and an object in motion stays in motion with the same speed and in the same direction unless acted upon by an unbalanced force.”
That’s Newton’s First Law of Motion, or the Law of Inertia.
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Most of us will remember that one from high school physics; it applies to everything from billiard balls to planets. It’s true of stocks, too.
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 hands-down the most consistent and predictable force that moves stocks.
- Big news announcements can move a stock suddenly, without much warning, and keep it moving for hours, days, or even weeks.
- Industry trends also apply force to stocks within the industry.
Now, I’m going to share a big momentum play with you in a minute, but first I’ll show you how our most recent similar pick, Zimmer Biomet Holdings Inc. (NYSE: ZBH) worked out.
How We Booked 347% Profits (and How to Do It Again)
ZBH shares rose 10.79% over seven trading days before its earnings announcement on Feb. 1, 2019. This occurred on a spike in volume (what we like to call enthusiasm), underlining the sheer 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 to 45 days – or even sooner.
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On Feb. 1, 2019, a great bullish short-term trade was the following long call spread:
- Buy March 15 $120 ZBH call for $1.70
- Sell March 15 $125 ZBH call $0.53
- Net debit: $1.17
For one contract, the total cost of this trade was only $1.17, or $117 for one option – that low price is one of the reasons I trade options. And for such an affordable price, this 42-day trade was promising a potential 327% return!
So Zimmer continued this upward movement, rising 6.3% over the next seven trading days. By the spread’s expiration on March 15, 2019, the stock had risen a full 8%.
The gains on the options play were much, much higher, though.
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.
Here’s Your Next Big Momentum Winner
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 shares, you would’ve made money, sure, but 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 big, fast returns!
How to Claim Your “Friday Night Fortune”
On Monday, I’m going to send out my next research recommendation with money-doubling potential. It takes just four and a half minutes to follow my instructions, and you could be set to book a “Friday Night Fortune” in less than a week. Don’t miss out – click here to learn how to get started.
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About the Author
Tom Gentile, options trading specialist for Money Map Press, is widely known as America's No. 1 Pattern Trader thanks to his nearly 30 years of experience spotting lucrative patterns in options trading. Tom has taught over 300,000 traders his option trading secrets in a variety of settings, including seminars and workshops. He's also a bestselling author of eight books and training courses.