Honeywell Is Looking To Make A U-Turn

U.S. stock index futures are dipping into negative territory again as Americans cast their vote in a closely-watched midterm election. The results will likely set the tone for the markets, though the question is what kind of tone that will be. Some say a Republican sweep could send Treasury yields higher and weigh on stocks, though others say it could propel equities given Trump’s business-friendly agenda. The same split prediction is being offered if Democrats take control of one of the chambers of Congress.

*Source:  Seeking Alpha

Let’s consider Honeywell International (Ticker: HON):

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 November 5th.  We can combine that with the VantagePoint propriety neural index indicator moving from the RED to the GREEN position back on October 30th.  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 potentially bullish scenario. We also have the predicted high and low above yesterday’s actual high and low indicating further weakness.  I want to play the VP bullish indication.

Strategy Discussion

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 HON, that yields a targeted strike of ~$155.00.  You may want to consider the HON November 23rd weekly expiration 152.50/155 call spread, buying it for $0.50.  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 = $0.50 and max reward = $2.00.  This means that you are getting odds of 4.00:1.

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