This strategy works best when a stock has recently had a sharp drop, to a point that you believe is a bargain price. It will allow you to buy the stock at a discount from the current market, if the stock behaves as you expect. And if the stock suddenly soars, you may make a tidy profit even though you missed buying the stock. Here's how it works.
A high return on the cash that is committed to the potential stock purchase.
Good to have a reminder of an important general principle, to always keep an eye on the bigger picture.