TM editors' note: This article discusses a penny stock and/or microcap. Such stocks are easily manipulated; do your own careful due diligence.

You can make money on the stock market by carefully selecting high yielding dividend stocks and just sit down and wait for the dividends coming in while your shares are slowly drifting higher. A great investment strategy, but not necessarily a fun one. So how about spicing up your portfolio by investing a little bit in a super exciting penny stock?

Let me introduce you to Worlds Inc (WDDD), a binary bet unlike any other. I initiated a small long position, and if things go well, my small investment will return a monster gain. If things go south, I lose all my money, but then again it’s just a small investment and I know what I’m doing (portfolio risk management is key). The buying opportunity here is that investors do not know that the odds of a monster gain are actually pretty good, way better than what the market is currently pricing in given WDDD’s miniscule market cap. 

To make my thesis readable, I formatted it in a brief Q&A session.

Q: What is Worlds?

Worlds is your typical under-the-radar OTC stock. It’s price level of a mere 15 cents makes it abundantly clear we are dealing with a penny stock. There are thousands of stocks listed on the OTC exchanges, and most investors do not know a thing or two about these stocks. OTC stocks, especially the subpar $1 penny stocks, are in general considered to be long shots. However, there are hidden gems to be found that offer surprisingly compelling investment ideas.

Q: What does Worlds do for business?

Worlds developed software and related technology for the creation of interactive 3D Internet environments encompassing massively multiplayer online role-playing games. The company's technologies are designed for large-scale communities of simultaneous online users, who interact within online interactive 3D virtual worlds. Worlds’ revenue model is monetizing its patent portfolio by having sued Activision, a $17 billion gaming conglomerate, for wilful infringement of various patents.

Q: The trial against Activision

I won’t get into all the technical details of the trial against Activision - go read this article - but it comes down to this: Worlds is suing Activision for wilful infringement upon various of its patents. It is seeking billions (!) of dollars in compensation; an enormous amount, certainly considering Worlds’ miniscule $12 million market cap. 

Q: Why is this a binary bet?

Simple. Either Worlds loses the case, or Worlds wins. A win could be a settlement, getting bought up, a licensing agreement, or a total court victory. The fact that the case against Activision is Worlds’ only case makes this stock a binary bet by definition.

A win will absolutely make the share price go parabolic. Depends on what kind of win exactly, but with a $100 million deal shares will go up 7X at least. A total court victory, an improbable outcome mind you, could mean a 100X (!) return. 

CEO Thom Kidrin stated in a recent press release:

"...Approximately 20 years ago, Worlds developed the patented seminal technology that has been fundamental to the development of multiplayer online gaming into a $20-billion dollar industry, As our litigation proceeds through the legal system over the past three years, damages continue to mount substantially...."

Q: Worlds’ financials

The financials are simple; Worlds has no revenue, no assets and a very low cash burn. The value of this company is purely the expected return of the case against Activision. Interestingly, Worlds outlays zero dollars, and Susman Godfrey, a renowned litigation firm, takes their percentage on the win. No cure, no pay. In this way, Worlds is not depleting it’s tiny cash hoard, so it can stay alive all the way up to the Supreme Court. 

Q: Comparison with other patent plays

There are many other patent plays out there. It’s clear that most patent stocks have been horrible investments over the past few years. Very popular stocks like VirnetX and Vringo got severely beaten up as their cases got thrown out the window by the Court of Appeals. Still, their market caps are respectively $300 and $70 million. Most patent stocks are valued at $50 million minimum. 

Worlds’ sits with an ultra-low $12 million valuation in the lowest bracket of the patent space; an exceedingly low valuation given the enormous amounts at stake for Activision. 

Q: What are the near-term catalysts?

The case is progressing for more than 3 years now, and finally a Markman hearing was held late October. The Judge's forthcoming findings could be announced any day now, making it likely that a trial date will be set. Besides the obvious risk of losing, delays happen all the time with patent monetization, so patience is required. Worlds’ current share price is quite low and stable if you look at the 5-year chart, so I’d say today is a good day to add some WDDD to your portfolio. 

Q: Where can I learn more about this stock?

Go read the press releases, go to their website and you can also dig up some good research articles via a Google search. 

Q: How likely is a win?

Hard to tell exactly, but I argue it’s 50/50. I've read all the research out there, and I think Worlds has a pretty solid case. So that means a 50% chance of losing your money, and a 50% chance of multiplying your investment by 5X, 10X or even up to a 100X. 

And, did I already mention how exciting this case is? The entertainment value is worth something too. So in sum, don’t buy too many shares given the high risk profile, but you will have an amazing story to tell at birthday parties if you did buy some and Worlds wins.