Options Action Fridays — Check out This Free Trade Just for You

Starting today and at least once a month going forward on Fridays, I am going to give you a free options trade that I have extensively researched and believe will explode in value. 

I’m also going to show you a simple method of trading options that offers you unlimited upside potential with very limited downside risk. 

This strategy moves quickly, which allows you to potentially bank double- and even triple-digit profits in just a few weeks. 

But perhaps the very best part is you can use this trading strategy over and over again, even on the same stock, while only risking a few hundred dollars at most with each trade.

Then I’m going to use this system to pinpoint a trade so you can put some quick cash in your pocket. 

Here’s the setup…

I’m Bullish on Semis

The simple laws of supply and demand dictate that there will be a sustained rise in the price of semiconductors, which is a trend that, according to most experts, will last upward of two–three years.

Everybody needs chips, and they need them now, in bulk. All this adds up to a fantastic bull case for the semi sector. 

We also have cyclical factors that will come into play for the sector as we move out of the summer slump and toward the back-to-school season, followed by what should be a booming and bustling holiday buying season. 

Plus, interest rates appear to have leveled off with the 10-year U.S. Treasury note stuck in a range between 1.4%–1.7%. This means your more typical tech trades, which are sensitive to rate hikes, are back in play.

Now, let’s turn this bull case into a big gain by July 23.

Buying and Trading Naked Calls for Big Gains

When we say we’re going to buy a call option, we mean we are going to buy an option for a premium (the price you pay to buy the call option) and then sell that call option at a later date for profit.

This strategy is great for speculators because for the most part, we will never own the underlying stock and will just collect profits on premiums. Yes, there will be rare cases where the call option is so deep in the money that our gain would be higher if we exercised our option to buy and sell the underlying stock. But that is not what will typically happen.

Buying calls is a bullish strategy because you expect the underlying stock to rise in value. The strategy’s big draw for traders is twofold. It allows you to trade expensive stocks with minimal investment, and it can produce big returns in a very short time frame.

Another reason traders are drawn to this strategy is because buying calls is one of the best options strategies for those who want to control their risk. When we buy these calls, our maximum loss is only as much as the premium (the price we paid to buy the call option).

Here’s an example…

Let’s assume XYZ stock is currently trading for $30. Say we decide to purchase a call option today, June 25, with a strike price of $35 that will expire one month from our purchase date. The call option for the XYZ July 25 $35 call has a per-share premium of $3. 

***Keep in mind ONE option contract relates to 100 shares of the underlying stock. You need to understand this to calculate the premium, or total cost, of the call option you’re buying.*** 

Therefore, in this example, the premium (total cost) for one XYZ July 25 $35 option is $300. 

From this juncture, there are a few ways this trade can go. 

If we call it wrong and the stock goes down to $28 by the July 25 expiration date, the option will expire worthless and we will lose our premium of $300. 

But that’s as bad as it can get.  

If our bullish sentiment is correct and the underlying stock price rises, the value of the premium to buy that contract will rise. In this example, XYZ shares rise to $34.50 one week out from our expiration date. Demand for this option is soaring and now the premium per share is $6.50. 

You could sell your option contract immediately for $650 and exit the trade with nearly a 117% gain and a total profit of $351 in just a few weeks (Total Return – Premium = Total Profit).

Another way to play this for profit is if XYZ stock really takes off and surges to a deep in-the-money price of $75 a week before expiration. 

Typically you expect the premium to rise in lockstep with the underlying stock, but due to unforeseen forces, the premium for this contract is still only up to $6.00. In this case, you could sell your options contract for a 100% gain and a net profit of $300. Or you could exercise your right to call back the stock at the $35 strike price, costing you $3,500 while automatically selling at market $7,500 for a 114% return, or a net profit of $3,700. 

Market Value – Strike Price – Premium = Net Profit. Or as it would be in this example: $7,500 – $3,500 – $300 = $3,700.

Not a bad way to collect some fast cash!

Now, let’s get into the specific option I recommend you buy today. 

Why I Expect Fast, Easy Gains From This July 23 Call  

Today’s call option to consider is the VanEck Vectors Semiconductor ETF (SMH) July 2021 $260.00 call that expires on July 23, 2021.

Here’s the setup.

I’ve already made the bull case for semiconductors clear. Additionally, my system has marked two other bull signals.

Going to the chart, we can see the 50-day moving average (blue line) crosses over the 200-day moving average (red line) to the upside — a strong bullish sign. 

Secondly, we can see over the past month the stock is trading in a tight range, often referred to as a “coiled spring pattern” (the blue box), which often leads to an explosive breakout to the upside once the “spring” uncoils.

Here’s what to do. 

Buy one SMH July 2021 $260.00 call with the expiration date of July 23, 2021. The price of this contract will be $3.35 per share, or $335 total. 

Once you’re in the trade, our goal is to sell the contract as we near the expiration date, ideally at a price of around $5–$6 for roughly a 100% gain. Keep in mind, however, this is an active management strategy, and you will want to check the prices daily until you reach a gain where you’re comfortable with how much time remains until expiration.

Conversely, if the stock starts to slide below our strike price of $260, we will actively manage this risk and sell before the option expires, minimizing our losses.

To recap, here’s today’s option trade:

Buy one SMH July 2021 $260.00 call with the expiration date of July 23, 2021.

• Strike Price = $260
• Expiration Date = July 23, 2021
• Premium = $335
• Max Loss = $335
• Profit Outcome #1 — Sell call option when nearly in the money for a percentage gain on your premium.
• Profit Outcome #2 — The option is deep in the money. For example, the share price is greater than $290 and one week from expiration. In this scenario, we could exercise our right to buy the underlying stock at a steep discount (the strike price of $260) and simultaneously sell the stock at market price for a nice profit.

Since this option expires in a little under four weeks from today, be sure to check back in every Friday for updates on this trade and for our next trade in the new Options Action Fridays series.

To your wealth,

Sean McCloskey
Editor, Energy and Capital

@TheRL_McCloskey on Twitter

After spending 10 years in the consumer tech reporting and educational publishing industries, Sean has since redevoted himself to one of his original passions: identifying and cashing in on the most lucrative opportunities the market has to offer. As the former managing editor of multiple investment newsletters, he's covered virtually every sector of the market, ranging from energy and tech to gold and cannabis. Over the years, Sean has offered his followers the chance to score numerous triple-digit gains, and today he continues his mission to deliver followers the best chance to score big wins on Wall Street and beyond as an editor for Energy and Capital.