We Turned A Tiny 2.9% Stock Move Into A 25% Gain

Last month, members of The Profit Machine closed a trade in cloud-based software company Datadog (DDOG) for a 25% gain in just one day. That’s right, we opened the trade on a Tuesday and closed it on a Wednesday.

There were two keys to our success with this trade that I’d like to share so you can potentially replicate them in your portfolio.

First, Datadog looked ripe for a gain. The stock had recovered nicely off of its low, and the markets appeared to be breaking above key levels.

Based on this technical picture, I was confident DDOG could climb at least a little bit higher over the next day or two. It was a conservative target to be sure, but given the market’s recent behavior, caution seemed warranted.

This price target was set just a few percentage points above where shares were trading at the time, though… so you may be wondering how I landed 25% in just 24 hours.

That brings me to the second key component of this trade.

I didn’t tell my readers to buy shares of DDOG. Instead, I advised them to purchase a call option on the stock.

If you’re completely new to buying call options, that’s okay. They’re one of the most basic and common of all options strategies.

Calls 101: How We Used Options To Multiply Small DDOG Rise By 10X

Buying calls is commonly used as a substitution for buying stock. But with options, we have the opportunity to preserve our trading capital by risking less money upfront while also multiplying our potential profits.

You see, call options go up in value when the price of the underlying security rises. Technically speaking, a call is an option contract that gives the owner the right, but not the obligation, to buy 100 shares of stock at a specified price (the strike price) at any time before a specific date (the expiration date). When the price of the underlying stock rises, the price of the call option goes up. Usually, you’re simply looking to sell the call for more than what you bought it for.

Buying a call option is similar to buying shares of a stock. In both cases, you are bullish on the company. The main benefit of buying the call option is leverage. One contract controls 100 shares of a stock, but it costs much less to enter into one contract than buying 100 shares of a stock outright.

In the case of DDOG, I recommended buying call options with a $175 strike price that expired February 18.

We entered the position on February 15 at a cost of $1.60 per share, or $160 per contract — much less than purchasing 100 shares of DDOG, which would have cost us just under $17,000 at the time.

As long as DDOG’s price pushed up just a little higher, preferably above $175, before the option expired on February 18, we would make a profit.

Just one day after we bought the options, DDOG had climbed 2.9% and the options were up 25%.

In other words, our DDOG options delivered a gain nearly 10 times the amount we would have made from buying the stock outright. While these kinds of returns aren’t impossible with stocks, they are certainly rare. With options, on the other hand, they are much more common.

Returns Like DDOG Aren’t Impossible

This is the same strategy I used to turn $5,000 into more than $60,000 in just three years.

I did all this with good old-fashioned discipline and risk management combined with basic technical analysis. It’s what I teach members of my trading service, The Profit Machine.

But I don’t just teach them the rules and then send them out into the market on their own. I make sure I’m doing everything I can to turn them into the best traders they can be… The kind that can turn $5,000 into $60,000 in just a handful of years.

You see, I host a weekly, live trading session just for people learning to apply this system of trading rules.

It’s the place where I’ll show you step by step how to look at what’s happening in the market, apply the rules, and make a trade.

And we will make many trades together in these meetings. It’s where I make most of my trade recommendations before I email them out to my readers. (The exact trades that turned my $5,000 into $60,000.)

If you want the chance to make trades like this, I urge you to take just a few minutes to learn more about my strategy. Just click here.

And be sure to join us for my next live trading session on Tuesday at 9 a.m. EST.