Building on yesterday’s momentum, U.S. stock index futures are climbing higher after the Dow Jones pierced 25K and the Nasdaq continued to flex its muscles. Investor confidence was propelled by ECB comments suggesting the winding down of QE, as well as Italy’s prime minister winning a second vote of confidence and Spain’s new leader naming a cabinet. Geopolitical concerns are again in focus, however, amid Brexit negotiations and an upcoming G7 summit
*Source: Seeking Alpha
The market continues to melt up, given this; we are still looking for upside opportunities.
Let’s consider Comcast Corporation (ticker: CMCSA)
The VantagePoint platform recently indicated a 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 between 6/5/18 and 6/6/18. We can combine that with the VantagePoint propriety neural index indicator moving from the RED to the GREEN position on that same day. This indicator measures strength and weakness for a 48-hour period, in this case strength. The move to the GREEN position further makes the case for a potential bullish scenario. Additionally, we see that the predicted high and low for today’s range is above the actual high and low from yesterday’s session. I want to play the VP bullish indication.
If one were a straight stock trader, simply buying CMCSA in the $32.50 area could prove to be prudent. You are anticipating a move to the upside. It’s also a conservative way to enter CMCSA without the limitation of time associated with other strategies. In this scenario, it would also be good practice to place a sell-stop order in the $31.50 area to mitigate potential losses.
For more 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 want first calculate your target strike. In order to do this, you need three pieces of information: last trade price, expiration date and implied volatility for that expiration date. This calculation for CMCSA yields a target strike of approximately $34.50. You may want to consider the June 22nd weekly expiration 33/34.5 call spread, paying $0.38. The maximum risk is the amount of premium you pay and the maximum reward is the width of the spread less any premium paid. In this case, maximum risk is $0.38 and maximum risk is $1.12. This gives you a reward to risk ratio of 2.95:1.
Given the trading and market environment outlined above, a trader must evaluate whether this reward/risk ratio is appropriate for his/her risk tolerance.
Strategy Position Update
Earlier in the week that we highlighted possible continuing bullish momentum in NetApp Inc. (ticker: NTAP). We demonstrated how you may consider buying the June 15th regular expiration, 72/73.5 call spread for $0.35. This is what the chart looks like today:
You see how the bullish momentum has continued and we indicated that exiting this potential play on the bullish momentum at $0.60 could prove prudent. Exiting at $0.60 gave us a ROI of 71.43% in one day.