Interested In Taking A TRIP?

A U.S. trade delegation that includes Treasury Secretary Steven Mnuchin, Commerce Secretary Wilbur Ross, National Economic Council Director Larry Kudlow, trade representative Robert Lighthizer and policy adviser Peter Navarro have arrived in China for trade talks.

Markets are off to unchanged in mid-day trade.

Let’s look at Tripadvisor today (ticker:  TRIP):

The VantagePoint platform recently indicated a potential upside breakout in TRIP could be forming due to a bullish crossover between 5/1/18 and 5/2/18.

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 5/1/18 and 5/2/18. We can combine that with the VantagePoint propriety neural index indicator moving from the RED to the GREEN position 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.

Strategy Discussion

If one were a straight stock trader, simply buying TRIP in the $38.00 area could prove to be prudent. You are anticipating a move to the upside. It’s also a conservative way to enter TRIP 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 $37.00 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 a passive, premium credit approach may be the best path to success.

Because of the reasons given above, the sale of a credit put spread may be one way to approach this situation.  You want to collect as much premium as possible while adhering to your risk tolerances and protocols.  You can consider the TRIP May 11th weekly expiration put spread collecting $0.40.  The maximum reward of the spread is the amount of premium you collected and the maximum risk is the width of this spread, less the premium collected.  Max risk = $1.00 – $0.40 = $0.60, max reward = $0.40 which gives us a risk to reward ratio of 1.5:1.

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