How to Buy Stocks on an Earnings Gap

When you buy an option, the most you can lose on the option is the amount that you paid for the premium. So we always take the premium costs and let's say it's a $100 stock and the premium is $4.00. We'll pour into $100.00 is 4%. We're okay risking 4%, especially on a partial position. That's not a big deal. And if it's holding and doing very well, go ahead and make the purchase because we know that big breakouts on earnings, breakaway gaps, even when they seem so extended, those are stocks that will often make big, big moves.