Making Money With Trend Tracking

| September 25, 2012 | 0 Comments

One of the reasons that we created the Option Trading Research tracking system was to identify and track companies that have growth potential.  And to show us where a lot of option buying is coming from. 

One such area we used to track before we created this system was companies like the makers of obesity drugs.  Such companies included Arena Pharmaceuticals (ARNA), Orexigen Therapeutics (OREX), and Vivus (VVUS).

Yes, they fit into broader categories such as “drug makers” and “biotechs,” but the story runs deeper for these companies because they’re closely linked to a specific social trend that is sadly growing.

As a matter of fact, just the other day, a report predicted that more than half the US population will be obese by 2030.  This marks a pretty sharp increase from the already troubling levels.

The Food and Drug Administration (FDA) refused to approve new obesity drugs for more than a decade, causing ARNA, VVUS, and OREX stock to go nowhere.

However, earlier this year they relented, causing these stocks to double, triple, quadruple, and more.  We saw an initial spike in the spring and early summer, followed by some nice pullbacks.

But, now it’s time to think about getting back on the train.

Here’s the kicker…

Just realize what you’re doing and don’t try too hard to understand the companies or their drugs.

Analysts will model their sales and growth rates, which is all well and good, but it won’t necessarily help you make money.  Their valuations now are extremely high while meaning little.

All that matters is that they’re going up.

While this might sound cavalier, in my view it makes a lot of sense.

The big story is that these companies have a bright future because obesity is a rising problem.  And some of these stocks could let you ride that trend, so try not to over-think it.

Reading too many analyst reports and knowing too much about the companies can blind you to truth.

Think about it like this…

You don’t need to understand the mechanics of an internal combustion engine to drive a car.  You need to get on the road going in the right direction, and if it suddenly hits traffic or is the wrong route, you take another one.  End of story.

Bottom line…

One way to avoid this is not to know too much.

Just have a general idea of what’s going on and pay much more attention to the price action.  In addition, Options Trading Research makes this easy because we do all the heavy lifting, even on products such as obesity drugs.  It lets you easily discover and track such groups.

Everything on the charts of ARNA, OREX, and VVUS indicate the road is wide open ahead.  They’ve rallied and pulled back.  Their stories are intact.

Now is the time to think about jumping on board.  But use options, they’ll limit your risk and allow you to participate on the upside as these stocks continue their massive run.

Safe Trading,

Marcus Haber

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Category: Options Trading Basics

About the Author ()

Marcus Haber is the co-editor of Options Trading Research and boasts well over a decade of real-life options experience. Learning from some of the biggest names in the business, Marcus has served as an Options Strategist for a number of firms and was also appointed to the Options Advsiory Board with Pershing, a branch of the Bank of New York.