Friday, May 29th, 2020

Breakout Stocks

October 20, 2015 by Jim Walker  
Filed under Call Options, Options Trading


Breakout stocks can be profitable if you anticipate the market. Otherwise you end up reading the news about someone else’s success. Profiting from breakout stocks has to do with anticipating and timing. If your timing is off you miss the boat or tie up your money for long periods of time waiting for market moves that might never happen. With options trading one can profit from breakout stocks without tying up investment capital for long periods of time and for a fraction of the cost of buying a stocks. Here are some thoughts about breakout stocks.

Beating the Market

Articles suggesting breakout stocks are common in the investing and trading news. The Street suggests 5 breakout stocks to beat the market.

To find the stocks that look best-positioned to outperform this fall, we’re turning to the charts for a technical look.

In case you’re unfamiliar with technical analysis, here’s the executive summary: Technical analysis is a way for investors to quantify qualitative factors, such as investor psychology, based on a stock’s price action and trends. Once the domain of cloistered trading teams on Wall Street, technicals can help top traders make consistently profitable trades and can aid fundamental investors in better planning their stock execution.

The five stocks listed in the article are as follows:

  • Pampa Energia SA
  • Frontier Communications
  • Amsurg
  • Holly Frontier
  • BT Group

Technical analysis predicts each of these breakout stocks. But, do you buy now? Is it too soon? Consider buying calls on potential breakout stocks instead.

Call Options

The Investopedia call option definition is as follows:

A call option is [a]n agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument at a specified price within a specific time period.

The buyer of a call option pays a premium to guarantee that he or she can buy the stock in question at a set price, the strike price, no matter how high the stock goes. This option lasts until the contract expires. In the case the stock is really a breakout stock and goes up substantially the buyer has two choices. One is to execute the contract and buy the stock at the old price. The other is to execute the opposite options trade and sell the contract for a profit. With short term breakout stocks the second choice is the better. Take your profit and leave. If, however, you believe that the stock has a lot of upside potential but the contract is ready to expire the better choice is to execute the contract and hold the stock as it appreciates before finally selling for a tidy profit.

More Potential Breakout Stocks

As we said, there are lots of articles about breakout stocks. The Motley Fool has suggestions for 5 stocks that could double in 2016.

While we Fools tend to prefer a far longer investment horizon, we are always looking for stocks that hold the potential to offer investors with spectacular returns. We asked our team of Motley Fool contributors to share companies that they think could double in price in 2016. Read below to find out the names of the stocks.

The 5 stocks are Melco Crown, Biopharmaceutical, Baidu, PTC Therapeutics and Inovio Pharmaceuticals. Do you want to buy stocks and wait until the end of next year or buy call options with expirations late in 2016? Our suggestion with potential breakout stocks is to look for cheap or even out of the money call options, buy them and wait.

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