On August 29, we recommended an options strategy to take advantage of the latest spate of bad news swirling around a fallen American legend: General Electric Co. (NYSE: GE).
If you followed that recommendation, it banked you 199.1% in less than a month. Here's how one of our best options strategies can keep working in your favor.
In August, Bernie Madoff whistleblower Harry Markopolos made very public allegations of fraud and manipulation in GE's Boston C-suite.
Considering Markopolos was the forensic accountant who called out Bernie Madoff's $64 billion Ponzi scheme, the market took notice. GE stock plunged 15% on August 15, the day the news came out.
But two weeks later, the stock seemed to stabilize. Money Morning Behavioral Trading Specialist Garrett Baldwin said there was a big problem with Markopolos' accusations.
You can read more about that here. Judging from insider trading activities, Baldwin saw that management was buying, not fleeing the stock.
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Some expected the stock to plummet as it sorted out the news. But it was still unclear whether the market would react positively or negatively.
That's why we proposed an options play called a "straddle." It allows you to play both sides of an event.
Investors made almost 200% on this one profit play.
Options Strategies: How the Straddle Won Out
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If the market takes a downward turn, the call option will become worthless, but the put option should gain several times its value. If Garrett's view was correct, then the put option will become worthless, and the call option will gain big time.
It's the perfect way to manage two potential outcomes.
In this case, Garrett was indeed correct. GE stock rallied from its August 29 close of $8.11 to $9.26 on September 12. That's a gain of 14.2%, which is pretty good for a 10-day trade.
However, a straddle involving a put and a call with a $9 strike price and an expiration date of October 18 would have done a lot better with a net return of 199.1%.
You basically tripled your money in two trading weeks.
The put portion of the straddle lost money, but the call portion made a killing to give you such a great net return.
And we didn't have to worry which way GE stock was going to move. All we needed was confidence that it was not going to sit motionless where it was.
The best news is that opportunities like this are always presenting themselves. You just need to know where to look.
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