Stocks that get pushed up rapidly, in part based on momentum traders, can make you a lot of money but are also very risky. When a momentum stock comes down it comes down hard and usually does not recover to its previous level.
Momentum stocks are usually high growth stocks. But the additional push by the momentum traders means that they really are not trading on a pure valuation basis. Baidu, the Chinese search and advertising company (competes with Google), is a good example of this type of stock.
One way to play momentum stocks is through a strategy of "stock replacement and roll-up". Instead of buying the stock you buy in the money call options, perhaps a couple of months out. This part is called "stock replacement" as you are using in the money calls as a substitute for the actual stock. The intent is to use the options as a derivative proxy for the stock. The intent is not to ever exercise the options.
As the stock continues to go up and hit new price milestones, the calls are rolled up. This means that you sell the calls you own for a profit and then purchase new options at a higher strike price. The most money you can loose is the cost of the options, which is a small percentage compared to the price of the common stock. Assuming the stock goes up and you are able to roll up the calls several times, at that point you are "playing with the house's money" and can never lose your original investment. You can take advantage of the rapid rise of a high flier while limiting your downside.
Disclosure: at the time of this posting the author was long BIDU and GOOG.
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