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How to Trade Options » STOCK OPTION TRADING » Bottom Fishing Stocks

Bottom Fishing Stocks

Bottom Fishing Stocks Using Options

Bottom fishing stocks is a term used to describe a stock purchasing strategy that focuses on shares in a company whose stock has taken a large and decisive price dive accompanied by notably increased volume.

The general idea is that the explosive volume tends to wash out the sellers from the market, leaving it ready for the buyers to come back in and take the share price to higher levels. Hence the term “bottom fishing stocks” – you’re fishing for stocks at what you believe may be the bottom levels of its price action and ready for a turnaround.

Buying These Stocks at a Discount

If you know anything about options trading then you’ll realize that you can both buy (go long) or sell (go short) option contracts. You’ll also know that in the USA one option contract covers 100 shares while in other countries such as Australia, they cover 1,000 shares – so you’ll need to bear this in mind when it comes to the level of capital you wish to invest. Do you intend to purchase multiples of 100 or 1000 shares?

The best way to illustrate bottom fishing stocks for a discount using options is to take an imaginary example. Let’s say XYZ company stocks have recently fallen dramatically to around $17 on high volume – sometimes referred to as ‘capitulation volume’. The stock has since been trading in a range and you believe it can’t fall much further so it’s a good buy if it goes as far as the $15 price level. You also have sufficient capital to purchase 500 shares.

A Bottom Fishing Stock Example

 

bottom fishing stocks

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DISCLAIMER: All stock options trading and technical analysis information on this website is for educational purposes only. While it is believed to be accurate, it should not be considered solely reliable for use in making actual investment decisions. This is neither a solicitation nor an offer to Buy/Sell futures or options. Futures and options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed in this video or on this website. Please read "Characteristics and Risks of Standardized Options" before investing in options. CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVERCOMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.