According to conventional wisdom, the savvy investor trades by the credo "buy low to sell high." And usually, it's a pretty safe strategy, predicated on the notion that what goes down will eventually come up -- and of course, that what goes up must also come down.

If this were always the case, you'd probably want to avoid adding soaring stocks to your portfolio. But as it turns out, it's not always a bad idea to buy into a rally. Because sometimes, a stock on the rise is just starting to gain momentum.

How can you tell if a stock will continue defying gravity, though? For clues, have a look at what's going on in the options market. Call options traders are generally sophisticated investors who bet on a stock's upside -- they look for stocks expected to see upward momentum over the coming weeks. If they're buying stocks on a rally, then they're probably pretty confident that more good news, that's yet to be priced in, is on the way.

Put simply, their bullishness might be a signal that the best is yet to come for these rallying stocks.

Check out our new list of rally stocks seeing bullish options sentiment. Do you agree with the option market's optimism? (Click here to access free interactive tools to analyze this list.)

Company

Performance Over Past Year

Call Options Open Interest (# Contracts)

Put Options Open Interest (# Contracts)

Put/Call Ratio

MIPS Technologies (Nasdaq: MIPS)

147.79%

39,037

686

0.02

Alberto-Culver (NYSE: ACV)

42.36%

4,010

122

0.03

Harvest Natural Resources (NYSE: HNR)

102.09%

20,540

851

0.04

Titan International (NYSE: TWI)

72.13%

6,517

297

0.05

Warren Resources (Nasdaq: WRES)

40.51%

1,449

76

0.05

Nxstage Medical (Nasdaq: NXTM)

233.02%

2,652

157

0.06

Magnum Hunter Resources (NYSE: MHR)

120.00%

3,130

215

0.07

LSB Industries (NYSE: LXU)

54.64%

2,149

161

0.07

Petroleum Development (Nasdaq: PETD)

48.76%

2,009

160

0.08

Interactive Chart: Press Play to see how analyst opinion has changed for all the stocks mentioned above.


Kapitall's Eben Esterhuizen and Alicia Sellitti don't own shares of any companies mentioned.

Nxstage Medical is a Motley Fool Rule Breakers pick. The Fool owns shares of Harvest Natural Resources. Try any of our Foolish newsletter services free for 30 days

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