I almost never prefer stocks over options.
Why would anyone buy stock, when they can get the leverage that options create to express a long or short position.
I was able to return over 90% on a $5,000 account in my Littlejohn options trading program between Nov. 1 of last year and the end of January.
There is simply no way to do that by buying stocks in reputable companies.
That said, I DID buy a stock in the final week of January.
This stock is seeing INCREDIBLE option volume.
It’s the type of thing that makes my new Robinhood Trader scanner go crazy …
Yet I chose to buy the stock.
Because at the time of the purchase, Sundial Growers (Ticker: SNDL) was trading .60.
I bought 400 shares, and I wish I had done a full allocation (800 shares).
Why Stock? Why Now?
So why did I choose to buy the stock?
Take a look at where option prices were at the time of my purchase.
These options expire Friday. Would I rather buy the stock for .60, or the Feb12 call for .25 …
What is going to make me more money?
In order for the $1 call to end up in the money, at the time, I would have needed the stock to double.
While it DID end up doubling, it would have been impossible to guess that, given the information available at the time.
But even with the gnarly move, I made more buying the stock.
Take a look at the options on Feb 1 when the stock closed 1.21:
Yes, the Feb12 1 call would have won, but I made a full .60 being long the stock.
The point is that when a stock is cheap, and I mean REALLY cheap, there are times when owning stock makes more sense than owning the calls.
Rewind Then Fast Forward
I bought 400 SNDL shares for .60
I sold 200 shares at 1.20.
Then I sat … and have continued to sit.
Why? Because I have no downside. And unlike owning option contracts, I don’t have an expiration.
On Tuesday, when cannabis stocks blew up and SNDL went to 1.79, you know what I did?
I have now made 200% on my 200 shares and I am in no hurry to sell.
I will sell 100 shares at $2 and then let the balance ride.
I have time on my side (I can’t run out of it) and the stock is hot.
The lesson here is that while owning options is almost always better, when the implied volatility gets crazy high (IV of the calls at the time of my stock purchase was 544%) on a cheap stock …
It makes total sense to just buy the stock.
Your Only Stock Option,