Suppose you believe that a certain stock currently trading at $40 has a lot of upside potential if it rises past $45. The reasons you believe this could be from a technical analysis of past pricing and trading behavior, the pending launch of a new product or service that will propel the stock price if it becomes popular, or simply the belief that $50 represents a fair market price for the stock and expect value investors to pile in this substantially undervalued stock and push it back up to par.

This is a stock you’re considering holding longer term but you’re not convinced that the rest of the market values it highly enough for it to merit a purchase for the long term. After all, the $4,000 you would have to spend to open a long position is a lot of capital to take off the table if you’re not convinced in the value of the underlying stock.

Instead of going long the stock, you could instead buy a call option for a few hundred dollars that has a strike price of $45. That way, if you’re right you’re locking in a purchase price that’s still reasonable and, if you’re wrong, you’re not risking $4,000 to find that out. Even though the $45 price point at which you’d eventually exercise the contract is higher than the current share price, $45 plus the knowledge that the stock value is now climbing makes that purchase price make more sense than the current $40 with no market activity to indicate which way the underlying stock might move.

If you believe that technical and psychological market indicators like trends move market prices much more than fundamental factors, buying several call option contracts on potential break out stocks could be a cost effective way to expose yourself to substantial profits without taking on substantial risk. For the price of buying 100 shares of a moderately priced stock, you could buy ten call option contracts on a set of likely breakout candidates. You’d only have to be right on one or two to make the entire strategy worthwhile.