Stock options have become simultaneously one of the most lucrative, most useful, most misunderstood, most controversial, and most dangerous financial instruments on the planet.

I know that’s a lot of different “mosts,” but it’s absolutely true.

Stock options can mean so many different things to different people because they are kind of like clothes. They come in all shapes and sizes. They can be mixed and paired together to meet totally different goals.

Over the years, some people have traded stock options to become phenomenally wealthy. Some traded them and lost fortunes. Some have traded them and walked away flat out confused.

The problem is they trade options on stocks with no concern for — or knowledge of — the quality of the business the options get their value from.

You see, the biggest driver of an option’s price — by far — is the price action of the stock the option gets its value from.

The price action of an option’s underlying stock is 100 times more important than any other part of the option. The truth of the matter is you can know all about the ins and outs of options, but if you buy a bullish option on a weak company with a sinking stock price, you’ve already lost.

And this is where so many investors get it wrong, and why I want to help them.

They buy and sell options based on gut feel, hot tips, and rumors. They don’t do what is obvious to me, which is place a huge focus on the quality of the business you’re buying an option on!

Remember, a stock isn’t some flashing light on a screen or a trading hot potato.

A share of stock is an ownership stake in a real business.

A share of stock is an ownership slice of a company’s equipment, inventory, patents, real estate, and brands. When you buy a stock, you become financially exposed to both the company’s upside and downside.

So, the more a company grows its earnings, the more its shares will be worth. It’s the iron law of the stock market. Simply put, prices follow profits.

Stock price trends can diverge from earnings trends for a while, but over the long term, if a company expands the amount of cash it takes in, its share price is sure to head higher.

That’s how the market works. It’s why top growth stocks like Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX), and Microsoft (NASDAQ:MSFT) have handed their early investors tens of thousands of percent gains.

And that’s what my proprietary, data-driven stock system is based on.

I analyze billions of data points and find companies with superior products and services, as well as superior sales and earnings growth. I consider this the high-tech version of “following the money.”

So, if you’ve ever wanted to use stock options to grow and protect your wealth — but have found the world of stock options to be confusing or too risky — the entire Power Options research service is for you.

The bad news about stock options is that many people use them recklessly and lose money.

The good news is that used intelligently, options can be an amazing investing vehicle for making big gains in the market without taking big risks.

Trading LEAPS

At Power Options, I focus primarily on in-the-money and out-of-the-money LEAPS calls trades. LEAPS, or Long-term Equity Anticipation Securities, are long-dated options with expirations lasting from one to three years.

All my recommendations come from fundamentally superior growth stocks that are well-positioned to meander higher over the next year or two. Simply put, I recommend call options on companies with growing sales and earnings and that are likely to post strong earnings results over multiple quarters.

The truth of the matter is I’m not interested in Wall Street’s “hype stocks” or bubble stocks. When a hype stock falls out of favor or the bubble stock is pricked, the smart money flees, and the investor is left holding the bag.

Case in point: GameStop Corp. (NYSE:GME).

GME was a low-quality stock that surged during the “Reddit Revolution.” Essentially, a group of Reddit users joined forces during the last trading week of January 2020 to put the screws to a bunch of big hedge funds that were shorting stocks like GameStop Corp. Their efforts ultimately created dramatic short-covering rallies that shot GameStop Corp. shares into orbit.

For GME to stay in orbit, it needs fundamentals — and that’s an area where it was sorely lacking. The company’s full-year sales and earnings were on the decline.

So, while the Reddit Revolution is squeezing shorts and sending stocks like GME into orbit, these stocks will fall back to earth due to poor fundamentals. And, unfortunately, many will “burn up” on reentry.

In the case of GME, the stock fell over 40% since Nov. 22, ahead of the company’s third-quarter financial announcements on Dec. 8. The company reported an earnings loss of $1.39 per share, down from an earnings loss of 53 cents per share a year prior and 169% lower than Wall Street’s estimates. Revenue of $1.3 billion increased from $1 billion a year prior and beat analysts’ estimates by 9%.

Moves like these are especially dangerous for options traders given options’ already-volatile nature and expiration dates. Investors don’t have the luxury to “hold the line.” Instead, they risk their trade expiring worthless, especially if that expiration date is just days away.

Now consider a fundamentally superior stock like NVIDIA Corporation (NASDAQ:NVDA), a major player in the computer hardware arena. It is a leading computer graphics company, making graphic processing units (GPUs) for consumers and businesses.

The company has posted wave after wave of positive results, beating Wall Street’s expectations for the top- and bottom-line every quarter since April 2019.

Thanks to double-digit data center and gaming revenue growth, NVDA achieved another quarter of record results in the third quarter in fiscal year 2022. Revenue jumped 50% year-over-year to $7.1 billion, topping analysts’ estimates for $6.83 billion. Data center revenue increased 55% year-over-year to $2.94 billion, while gaming revenue rose 42% year-over-year to $3.22 billion. Both were new records for the company.

Third-quarter earnings soared 60% year-over-year to $1.17 per share, compared to $0.73 per share in the third quarter of fiscal year 2021. Analysts were expecting earnings of $1.11 per share, so NVIDIA posted a 5.4% earnings surprise.

Company management commented, “The third quarter was outstanding, with record revenue. Demand for NVIDIA AI is surging, driven by hyperscale and cloud scale-out, and broadening adoption by more than 25,000 companies.”

NVIDIA now expects fourth-quarter revenue of $7.4 billion, up from $5 billion in the fourth quarter of fiscal year 2021.

Its stock has climbed nicely higher since 2019 — up more than 407%. But that strength has nothing to do with short squeezes or any internet forum; rather, it’s because of the company’s strong fundamentals. NVDA’s earnings soared 149% from 47 cents per share in its fiscal fourth quarter of 2020 to $1.17 per share in its fiscal third quarter of 2022.

My call trade for NVDA came on April 22, 2021. The stock fell as much as 9.4% over the next three weeks. As a result, the call options dropped nearly 40%. However, they rebounded with a vengeance following NVDA’s blowout first-quarter earnings results for fiscal year 2022, released on May 26.

The stock then went on to rally about 12% on the news, reversing the NVDA calls from a nearly 40% loss to a more than 45% gain in seven trading days. When I recommended closing out of the NVDA calls in November, the trade was up 426%.

The bottom line: Good stocks bounce like “fresh tennis balls.” And when those good stocks bounce, so do my Power Options trades.

Now, to be clear, these trades weren’t made on a whim. The companies all have a strong history of growing their sales and earnings, as well as posting earnings surprises. The truth of the matter is I’m not interested in betting on randomness, on the unpredictability of very short-term market movements. That can get you into trouble with “meme stocks” like GameStop Corp. Sure, stocks like that can make massive moves to the upside, but they can also turn just as quickly. So, odds are high that you’ll be left holding the bag after the smart money flees the stock.

As you can see, sometimes it does take a little time for my trades to play out, which is why I focus solely on Long-term Equity Anticipation Securities (LEAPS). This way we have more time to ride out the short-term blips. The reward is worth the wait.

To learn more about Power Options and my strategy, click here.

Sincerely,

Louis Navellier

P.S. If you’re not an options expert, that’s perfectly okay! I am especially proud that my Power Options service is easy for brand-new options trades and pros alike, as all of my recommendations are very straightforward and easy to follow. I also offer a LEAPS Trading Primer and educational videos to help get you started.

P.P.S. While the stock market will be open on Friday, Dec. 31, the InvestorPlace offices, including our customer service department, will be closed. We will resume our regular Market360 schedule next Tuesday. I hope you have a wonderful holiday season and a happy New Year!

The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:

Amazon.com, Inc. (AMZN), Microsoft Corporation (MSFT), NVIDIA Corporation (NVDA)

Louis Navellier, who has been called “one of the most important money managers of our time,” has broken the silence in this shocking “tell all” video… exposing one of the most shocking events in our country’s history… and the one move every American needs to make today.