Another day of gains looks in store for U.S. equities as stocks advance across the globe, with China’s Shanghai Composite Index even closing up 2.5%. The DJIA and S&P 500 set new highs Thursday as the economic outlook got rosier: Initial jobless claims, a proxy for layoffs across the U.S., fell to the lowest level since 1969. A recent spike in government bond yields is further signaling that investors are viewing next week’s expected interest rate hike from the Fed as a testament to the strength of the economy.
*Source: Seeking Alpha
Let’s consider Alphabet, Inc. (Ticker: GOOGL):
The VantagePoint platform recently indicated upside momentum.
Using the predictive indicators embedded within the VantagePoint platform and its predictive AI technology, we will point out three significant things. We have a bullish crossover indicated by the blue predictive indicator line crossing above the black simple moving average on September 20th. We can combine that with the VantagePoint propriety neural index indicator moving from the RED to the GREEN on September 18th. This indicator measures strength and weakness for a 48-hour period, in this case, bullishness. The move to the GREEN position further makes the case for a potential bullish scenario. We also have the predicted high and low above yesterday’s actual high and low indicating further strength. I want to play the VP continued bullish indication.
If you are strictly a stock trader, simply buying GOOGL in the $1183.00 area is a prudent move. You are anticipating a move to the upside. It is always a good idea to enter a sell-stop order to mitigate potential losses. Placing that sell-stop in the $1177.00 area will achieve that goal.
For active traders with a shorter investment time horizon, you can consider a setup utilizing options. Given the market conditions outlined above, taking an active, premium debit approach may be the best path to success.
Because of the reasons given above, the purchase of a debit call spread may be one way to approach this situation. You will first want to calculate your target strike. In order to do this, you will need three pieces of data: current price, expiration date and the implied volatility associated with that expiration date. For GOOGL, that yields a targeted strike of ~$1240. You may want to consider the GOOGL October 19th regular monthly expiration 1230/1240/1245 broken wing call butterfly spread, buying it for $1.30. The most you can lose is the premium paid and the most you can gain is the width of the wider spread less any premium paid. Max risk = $1.40 and max reward = $8.60
This means that you are getting odds of 6.14:1.
Given the trading and market environment outlined above, a trader must evaluate whether this reward/risk ratio is appropriate for his/her risk tolerance.
Back on Tuesday, September 17th we highlighted a bullish indication in ConocoPhillips (Ticker: COP). We showed how we could take advantage of this bullish indication by purchasing the October 19th regular monthly expiration 77.5/80 call spread paying $0.50. Here’s a look at today’s chart:
As you can plainly see, COP has continued its bullish run and is showing no signs of slowing down. The spread is now trading approximately $0.65. You could realize a profit of $0.15 or a profit of 30.0%. Until we see any signs of slowing bullish momentum, we will continue to hold this position.
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