In the investing field, choosing between trading stocks or options is very similar to choosing between a red or white wine…
Both have their benefits, but each person who chooses to partake has their own opinion as to which they prefer.
Personally, I prefer trading stocks. That’s just how I’m built.
But I am also very aware that there are many of you who prefer to invest in the options markets, and believe me, I get it.
Options are great at creating limited-risk trades, meaning if a call option costs $100, that’s the most capital you’re risking to lose.
And should things happen to go your way, the profit potential could be unlimited!
Now, like pretty much everything, options do have their limitations.
But if used correctly, they have the power to turn a 10%-15% move into a triple-digit gain, and that’s something I think we’d all like to be a part of.
With this in mind, today, let’s look at an example of an options opportunity that I believe shows great upside potential in the days and weeks ahead.
American Homes 4 Rent
American Homes 4 Rent (AMH) is a real estate investment trust (REIT) specializing in single-family rental properties with big exposure to residential real estate.
As shown in the chart above, the stock recently was able to complete a tightening base and just broke out through the $43 area.
There are many options available to someone who might be interested in jumping on this opportunity before it disappears.
Two Ways to Play
The first way is to buy the stock. Plain and simple.
Then, place a stop loss at $40.50, risking around 5% on the trade.
But for the speculators out there, you could always buy a call.
Specifically, you could buy the AMH February 18th, 2022, $45 call option, which as of this writing is trading for about 50 cents (or $50 per contract) as shown below:
Because the strike price for this call option is $45, that means if AMH isn’t able to get above $45 per share in the next six weeks, the option will expire worthless at expiration on Feb. 18, and we will very well lose the full $50 invested.
That being said, with your risk capped, even if AMH goes to zero in the days ahead, the most you can lose is the $50 you paid for the call option!
And should the shares take off, we’re looking at a potentially unlimited profit!
Even if AMH only moves up a mere 10%, the option would then be worth around $1.70, which would be a gain of roughly 233%!
Now, remember, no stock pick is ever a sure thing. And trading options on the long side is a whole other ballgame.
Nothing is guaranteed in the markets, and this opportunity might not work out.
Or it could triple your money next month…
That’s the way of the business. After all, if it was easy, everybody would be doing it.
Remember, what call options do is create a way for us to control our risk without breaking a sweat every time the charts tick up or down.
Calls give us unlimited upside potential with limited risk, which in this market could be very tempting.
Embrace the surge,
Editor, Stock Surge Daily