10 Option Ideas on Extremely Bullish Stocks

In this article are some buy/write option ideas on some of the best rated stocks (according to Investor's Business Daily (IBD). To see more about the criteria used in rating these stocks click here. I have outlined ways to play these stocks using the buy/write option strategy. For more on this strategy visit my blog.

The list below is ranked in order from the lowest IBD score to the highest IBD score which is indicated after the ticker symbol. All of these stocks are rated A+ and have a greater than 95 composite rating. I chose the highest possible option strike price with a greater than 40% chance (risk neutral probability) of expiring in the money for the July option expiration (all data as of pre-market June 8, 2009).

Option Idea #1: Buy Apple (AAPL) (rated 95) stock and sell the July 150 Call option. This will give you downside protection of 4%. If you get called away this will return a total of 7.7% in less than 42 days. The current options market is factoring in 42.8% probability Apple expires above the indicated strike.

Option Idea #2: Buy Visa (V) (rated 97) stock and sell the July 70 Call option. This will give you downside protection of 4.5%. If you get called away this will return a total of 5.5% in less than 42 days. The current options market is factoring in 49.3% probability Visa expires above the indicated strike.

Option Idea #3: Buy Google (GOOG) (rated 98) stock and sell the July 460 Call option. This will give you downside protection of 2.9%. If you get called away this will return a total of 6.5% in less than 42 days. The current options market is factoring in 42.8% probability Google expires above the indicated strike.

Option Idea #4: Buy Joy Global (JOYG) (rated 98) stock and sell the July 41 Call option. This will give you downside protection of 8.1%. If you get called away this will return a total of 9% in less than 42 days. The current options market is factoring in 52.2% probability Joy Global expires above the indicated strike.

Option Idea #5: Buy A-Power Energy Generation Systems (APWR) (rated 99) stock and sell the July 17.50 Call option. This will give you downside protection of 3.3%. If you get called away this will return a total of 35.9% in less than 42 days. The current options market is factoring in 43% probability A-Power expires above the indicated strike.

Option Idea #6: Buy Baidu (BIDU) (rated 99) stock and sell the July 320 Call option. This will give you downside protection of 5.1%. If you get called away this will return a total of 10.3% in less than 42 days. The current options market is factoring in 42.6% probability Baidu expires above the indicated strike.

Option Idea #7: Buy Longtop Financial Technologies (LFT) (rated 99) stock and sell the July 30 Call option. This will give you downside protection of 8.1%. If you get called away this will return a total of 9.8% in less than 42 days. The current options market is factoring in 51.7% probability Longtop expires above the indicated strike.

Option Idea #8: Buy Perfect World (PWRD) (rated 99) stock and sell the July 25 Call option. This will give you downside protection of 5%. If you get called away this will return a total of 12% in less than 42 days. The current options market is factoring in 40.2% probability Perfect World expires above the indicated strike.

Option Idea #9: Buy Research in Motion (RIMM) (rated 99) stock and sell the July 85 Call option. This will give you downside protection of 7%. If you get called away this will return a total of 9.8% in less than 42 days. The current options market is factoring in 49.1% probability Research in Motion expires above the indicated strike.

Option Idea #10: Buy STEC (STEC) (rated 99) stock and sell the July 20 Call option. This will give you downside protection of 5.9%. If you get called away this will return a total of 13.6% in less than 42 days. The current options market is factoring in 41.7% probability STEC expires above the indicated strike.

These options expire on July 18, 2009 therefore the last trading day is Friday July 17, 2009. As you can see the higher the probability of expiring above the indicated strike, the lower the premium (this should make sense). In the case the option expires out of the money (dead) I just write it out for a similar strike for the following month.

If you are more bullish/bearish you’ll want to adjust the strike price accordingly. If you’re more bearish write deeper in the money calls, you will not return as much if you get called out, but if you do, and the overall market is down you’ll most likely outperform the market.

From these 10 stocks the ones which appeal most to me are Longtop Financial, and A-Power. I already own A-Power and will not get out of my position until I become less bullish on oil. As for Longtop I am looking to get into the stock on a pull back and then wait for a pop to write it out. For more option strategies check out my blog here.

Disclosure: Long APWR, GOOG, V

Comments

[Mad Hedge F...:]

I'll go for BIDU on a dip. If you need further proof of where the future growth in the global economy is coming from, take a look at Bidu (BIDU), the Google of China, which I strongly recommended on March 6 (www.madhedgefundtrader...). It has jumped 280% from the lows to $280, and has been one of my better calls of the year. In the meantime, our Google (GOOG) rose by only 48% to $435, just 8% more than the S&P 500. These hedge fund darlings are best of breed companies, but the Chinese one outperformed the American counterpart by a factor of 6:1. This is the consequence of the US economy making a permanent shift from a 5% growth rate to 1.5%-2%, and is a pattern you can expect to see repeated around the world for the next decade. The cruel truth here is that American companies, with the drag of a mature economy, will never command the same multiples of Chinese ones. When looking for long equity exposure, always look for Chinese ones first. Expect huge growth of the four horsemen of the Chinese Internet sector-Netease (NTES), Sina (SINA), and Sohu (SOHU), and BIDU- who are going to eat our lunch.

Jun 08 09:42 AM

[TCK:]

How about some ideas on call spreads, ( calendar, vertical, diagonal ) for those of us that have limited idle funds ?

Jun 08 11:40 AM

[connorport:]

Again, i have to say that i would hold until after earnings to sell any covered calls on APWR. The two new contracts that were recently awarded would allow the company a cash infusion from upfront starting costs that are typical to contract awardees. I personally like the Sept 17.50 covered calls but i would put a sell in at around the 2.25 to 2.50 mark which i think they will achieve. We should see an earnings reports that will top estimates by about .25 per share based on start up awarded money that has not been figured into consensus and an adjustment upward for future earnings could drive the stock between $18-$20 a share. Thats my play.

Jun 09 10:14 AM

[Bolt:]

Marco, I have a question about your statement, "the higher the probability of expiring above the indicated strike, the lower the premium."

First off, I'm an options newbie, so you probably know better than I. But I have to say, I don't get why someone would pay less premium for calls on a stock that is more likley to exceed the strike price.

Exceeding the strike price is the only way a call is worth anything at op-ex, right? If so, doesn't higher probability of exceeding the strike price equate to more likely profit and less perceived risk? If so, isn't that higher probability of exceeding the strike price worth more premium instead of less?

Thanks in advance to anyone who can take a shot at clarification.

Jun 12 06:38 PM

[Marco Hickey:]

You are correct, what I meant was % return. Thanks for catching that. My apologies.


On Jun 12 06:38 PM Bolt wrote:

> Marco, I have a question about your statement, "the higher the probability
> of expiring above the indicated strike, the lower the premium."<br/>
>
> First off, I'm an options newbie, so you probably know better than
> I. But I have to say, I don't get why someone would pay less premium
> for calls on a stock that is more likley to exceed the strike price.
>
>
> Exceeding the strike price is the only way a call is worth anything
> at op-ex, right? If so, doesn't higher probability of exceeding
> the strike price equate to more likely profit and less perceived
> risk? If so, isn't that higher probability of exceeding the strike
> price worth more premium instead of less?
>
> Thanks in advance to anyone who can take a shot at clarification.

Jun 13 10:59 AM