How to Profit from Big-Money Stocks for Pennies on the Dollar

Shelling out money for shares that cost $1,000 apiece can be off-putting, no matter how well they perform or the actual value they represent.

Never mind that "cheap" is often cheap for a good reason; there's an understandable, but mostly incorrect, perception that the lower the share price, the better the bargain.

But it's undeniable: Stocks like Alphabet Inc. (NASDAQ: GOOG), Autozone Inc. (NYSE: AZO), and Chipotle Mexican Grill Inc. (NYSE: CMG) are all caught up in dynamite trends.

They're far outpacing the market, and there's no reason for them to stop anytime soon.

And yet, plenty of regular investors take a look at the quote and think they'll have to settle for fractional shares - or worse, give the company a miss altogether.

So today, I'm going to share the cure for "stock sticker shock." Anyone can use it to ride mammoth profit trends in pricey shares for a fraction of the cost of holding them.[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]

My Stock Substitute Strategy Is Easy to Use

Here's the truth: You can gain exposure to high-dollar, $1,000-plus shares for a far, far lower price to tap into the profit potential.

It's a simple concept:

  • Buy in-the-money call options on a stock. Use a longer time expiration option to match your expected holding period.

Here's an example. Let's say that I'm bullish on CMG with a time horizon that stretches into 2021...

I could buy 100 shares of CMG, which would cost me roughly $106,000 - about the same as a new BMW 840i.

Or I could use the "stock substitute strategy" and buy CMG Jan. 15, 2021 $900 calls (CMG210115C00900000) for 22% of the price of the shares, or roughly $23,470.

And so you reap the benefits:

  • Less capital outlay.
  • Some leverage, but not nearly as much as an at- or in-the-money option.
  • And you get some "buffer" to downside moves given the in-the-money price.

That said, there are some potential drawbacks.

Here are a few scenarios....

CMG Share Price $1,060
Cost for 100 Shares CMG $106,000
Cost of 1 CMG Jan. 15, 2021 $900 Call $22,450
Amount of Intrinsic Value $16,000
Time Value of the Option $6,450

Now, let's look at some ways this could all play out....

Let's say that CMG shares go to $1,500 at year-end:

Value of Stock $150,000
Return from stock 44%
Value of 1 CMG Jan. 15, 2021 $900 Call $60,000
Return from Call Option 167%

Let's say that stock goes to $1,200:

Value of Stock $120,000
Return from stock 13%
Value of 1 CMG Jan. 15, 2021 $900 Call $30,000
Return from Call Option 34%
Break Even for Substitute $1,124.50

The difference in risk is stark: The maximum amount at risk for the "stock substitute" is $22,450; your exposure with the stock is $106,000.

If, as expected, CMG moves above $1,124.50, every single dollar above is profit - profit that grows with a little leverage over the same price movement in the stock.

The bottom line is this: When you use the Stock Substitute Strategy, you stand to make multiples more than you would by simply holding the stock.

In the case of CMG, that's nearly four times the profit at a less than a quarter of the price.

Now, I'd like to invite you to go right here to learn how to join me inside my LIVE Night Trader trading room to see how I recommend my "Morning Trade."

Every morning at 11 a.m., you could get the chance to hop into my trading room and "look over my shoulder" as I reveal what I think are the possible top profit opportunities of the day. It's your shot to capture 52%... 78%... even 108% in a matter of days.

Next time, I'm going to show you how to "up your game" with the strategy and use spreads to trim your risk and boost your profits. Talk to you soon.

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About the Author

Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.

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