Bullish On Check Point Software? Check!

China will ask the World Trade Organization to impose sanctions on the U.S. next week for non-compliance related to a ruling regarding U.S. dumping duties. The 2017 WTO ruling was related to several industries ranging from machinery to metals to light industry for a total annual export value of up to $8.4B.*Source:  Seeking Alpha

Let’s consider Check Point Software Technologies (Ticker: CHKPWealth Strength IndexCHKP is Moderately Flat and trending Down):

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The VantagePoint platform recently indicated continued 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 10th.  We can combine that with the VantagePoint propriety neural index indicator moving from the RED to the STACKED GREEN on the same day.  This indicator measures strength and weakness for a 48-hour period, in this case, strong bullishness.  The move to the STACKED 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.

Strategy Discussion

If you are strictly a stock trader, simply buying CHKPWealth Strength IndexCHKP is Moderately Flat and trending Down in the $117.25 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 $115.25 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 CHKPWealth Strength IndexCHKP is Moderately Flat and trending Down, that yields a targeted strike of ~$125.00.  You may want to consider the CHKPWealth Strength IndexCHKP is Moderately Flat and trending Down October 19th regular monthly expiration 120/125 call spread, buying it for $1.25.  The most you can lose is the premium paid and the most you can gain is the width of the spread less any premium paid.  Max risk = $1.25 and max reward = $3.75

This means that you are getting odds of 3.00:1.

Given the trading and market environment outlined above, a trader must evaluate whether this reward/risk ratio is appropriate for his/her risk tolerance.