Though other technology instrument companies like PerkinElmer (NYSE:PKI) are pulling back from uptrends, Hewlett Packard (NYSE:HPQ) is still going strong from the January rally. My Power Stocks system has shown steady growth in this stock over the past six months, especially in recent weeks.
But not every strong trend makes for a strong options trade. In addition to having an underlying stock that’s poised to jump way up, a good option must be low-priced (which reduces your risk), and have a good probability of profit.
So based on stock price movement and theoretical option values, my Power Options system has identified the following trade in HPQ:
Recommendation: Buy HPQ Feb. $16 call options at 44 cents or lower, when the stock price is around $15.10. After entry, take profits if the stock price hits $16.60 or if the option price rises to $1.20. Exit if the stock price closes below $14.3 or if the option price falls to 20 cents.
This trade has a 19% probability of reaching the $1.20 profit goal. That may seem low, but 20% is about average for options under a dollar. Plus, we calculate the probability that the option will hit its target price; the probability of returning a smaller profit is higher.
Also, our computers calculate probabilities assuming a random market. So a call option with a 20% probability really has a 40% probability in a bull market, and a zero percent chance in a bear market. The opposite is true for a put option. It has twice the probability of reaching its target price in a bear market, and a zero percent chance in a bull market.
InvestorPlace advisor Ken Trester is editor of the popular Maximum Options program. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990. Try Maximum Options today for 2 months for only $99.