Investing in Penny Stock Options

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Feb 14th, 2008 | By | Category: Options, Penny stocks

As you know, here at Penny Sleuth, we love our penny stocks. Occasionally though, we get off track. We’ve discussed everything from commodities to currencies. The fact of the matter is you have to pay attention to it all. Investing is no easy business. But today, I will get back on track with a relatively unknown technique…

You see, when most people think of penny stocks, they think of one thing: buy tiny companies at extremely low prices and sell high, when these companies are finally discovered by Wall Street. I’ll show you what I’m talking about…

On February 1 this year, O’Reilly Automotive (ORLY: NASDAQ) proposed a buyout of CSK Auto Corp. (CAO: NYSE) for $8 a share. Fortunately for CSK shareholders, their shares had just closed the day before at $5.95. Volume spiked… People went nuts and bought like crazy…

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If you had bought just $1,000 worth of shares at the end of trading on January 31, you would have walked away with $580 in pure profits by 12:30 p.m. the next day. This kind of thing shouldn’t shock you. If you are reading this, you already know the enormous potential of these kinds of stocks.

But what would you say if I told you that there was a way you could’ve used that 58% spike to make 500% instantly?

Well, you could have…

You see, people can also buy options on CSK. Options are simply contracts that permits the owner to purchase or sell an asset at a fixed price until a specific date. Meaning, with the added risk of timing the market, the rewards skyrocket.

Take a look at what I mean here…

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The same day that CSK’s share price went up 58%, the February $5 calls went from $0.70 per contract to as high as $4.20 per contract. That’s a gain of 500% in just a few hours. And if you had gotten in a week earlier, you would’ve paid just $0.55 a contract and seen a 664% gain!

The same goes for stocks that fall, which we’ve seen plenty of so far this year…

Take a look at radio frequency-components maker, RF Micro Devices, Inc. (RFMD: NASDAQ). In mid-January this year, the company cut its earnings outlook and Wall Street cried bloody murder. Shares fell 25% the day that came out and nearly 44% for the month of January:

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If you had $1,000 invested in RF Micro at the beginning of January, you’d be left with only $565 by the end of the month.

Now, if you had bought a handful of RF Micro February 2008 puts at the beginning of the month, it would have cost you only 15 cents a contract. By the end of January, you’d be sitting on contracts worth $1.90 each. That’s a 1,167% gain in one single month!

RF Micro February 2008 chart

Hopefully, that answers our dear reader’s question about penny stock options. And the next time we find one like this, we’ll be sure to let you know…

Sincerely,

Jim Nelson
March 14, 2008

P.S.: Unfortunately, we are not market timers. That is key to options trading. Only a select few people in the world have ever been consistently successful at it through the years. We do, however, know of one such person.

And until Monday at midnight, we have something very special for you. Our publisher is giving you the chance to try this options expert out for four months completely free. He does all the hard work. It’ll only take you five minutes a week to see the kinds of profits we mentioned above.


Author Image for Jim Nelson

Jim Nelson

Jim Nelson began his investing career during the tech boom at age 14 – with purchases of Starbucks and AOL. Early inspiration came from an old Tweedy Brown whitepaper: “What Works in the Market.” He graduated with a degree in Political Science from Pittsburgh University, Nelson focuses on income investing, including dividends, covered calls, and fixed-income. Additionally, he covers MLPs, ADRs, utilities, consumer staples and tobacco. Nelson is the managing editor of Lifetime Income Report.

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  1. Hello Penny Slueth. My name is Ricky Causey. In order to prosper trading penny stock options, common sense tells me that all I’ll need is a penny stock option RECOMMENDER and a good discount penny stock option BROKER. Do Penny Slueth or Penny Sock Fortunes have information on these two subjects.

    I also wish that there was a way to trade penny stock options without having to deal with an options application. Is that possible. Can someone please take out time to call me with the answers???
    Thank for reading! Ricky Causey
    662-303-6768

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