Call Option Case Study: 171% Gain in SHOP Stock in 31 Days - Cabot Wealth Network

Call Option Case Study: 171% Gain in SHOP Stock in 31 Days

Winning Stocks Unusual Options Activity

If You Bought My Call Option Recommendation in October, You’ve Gained 171%!

Call option buyers perfectly timed the bottom in Shopify (SHOP) stock following the stock’s dramatic decline in mid-October. And the call buy I recommended in my Wall Street’s Best Daily on October 11 is now at a profit of 171%!

If you don’t remember the story, short selling firm Citron accused Shopify of being a “get-rich-quick” scheme and urged the Federal Trade Commission to investigate the company. Citron put a price target of 60 on SHOP, almost 50% lower than the stock’s price when the research note was released.

A couple of days later, I wrote a Wall Street’s Best Daily with my thoughts on Shopify and a trade idea. Here’s what I wrote.

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“So with Shopify stock falling and uncertainty around the company picking up, how could I trade SHOP using options?

“Buying call options is the best risk/reward setup. And I may try to buy SHOP calls in the coming days if my Unusual Options Scanner tool tells me that big traders are stepping in and buying Shopify stock options.

“And if SHOP Option Order Flow turns bullish, with Shopify stock trading today at 92, I might look to buy the January 100 Calls for $7.

“What makes buying these calls so attractive is that my downside is limited by my premium outlay on the trade: $700. This is a significant discount to paying $9,200 for 100 shares of the stock. And if SHOP stabilizes and runs back to its old highs and beyond, my upside is unlimited!

However, if Citron is right, and SHOP is a short and the stock drops, the most I can lose on the trade is $700.”

Just hours after I wrote that Wall Street’s Best Daily, I noted to Cabot Options Trader and Cabot Options Trader Pro subscribers the following big bullish options trades made in SHOP:

Buyer of 3,500 Shopify (SHOP) November 100/120 Bull Call Spreads for $3.55 – Stock at 92

Buyer of 3,000 Shopify (SHOP) November 100 Calls for $4.85 – Stock at 92.5

That was exactly the type of bullish option activity I was looking for! A trader was putting on a high conviction trade, with nearly $2.7 million at risk. And as the graph below shows, October 11 was the bottom in SHOP stock:

Here's how I made 171% in a month on a call option trade in Shopify (SHOP) stock.So if I had bought the January 100 Calls for $7 as I had recommended, and they are trading at $19 today, how might I manage that position?

First off, when I have a big winning options position, I always sell half and let the rest run for bigger profits. Selling half allows me to shoot for a home run with the rest of the position because I have partial profits in the bank.

And once I have sold half, I set a mental stop on the remaining half, which I continue to raise as the stock goes higher.

In this case, if my SHOP option that I bought for $7 was now worth $10, I would set a mental stop at $9. If the option fell to $9, I would sell my calls for a modest profit.

However, if the stock continued to rise, and my mental stop was NOT hit, I would raise my stop along the way. If the option went to $14, I would raise my stop to $13. I would let it run higher and higher, and raise my stop as it did.

More Call Option Winners

That’s the same options trading strategy that has yielded Cabot Options Trader subscribers profits of over 600% in Nvidia (NVDA) and 199% in Symantec (SYMC) in the last year.

So did I buy SHOP call options at the bottom as that trader did? I did not. Two days before the SHOP trades, Cabot Options Trader subscribers had bought calls in Yelp (YELP) following several days of unusual options activity. And I felt that our portfolio had enough technology exposure at that time. In the coming weeks, we sold half of those YELP calls for a profit of nearly 20% and we’re holding the balance, looking for a home run.

This past week, I recommended a new call option position in an earnings season winner that has attracted big call buying activity. If you’d like to know which stock it is and more about Cabot Options Trader, click here.

Jacob Mintz

Quick Profits, Controlled Risk

Jacob Mintz is a professional options trader and Chief Analyst of Cabot Options Trader. He uses calls, puts and covered calls to guide investors to quick profits while always controlling risk. Beginners and experts alike can gain from following Jacob’s advice.

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