Following Wednesday’s tariff battle between the U.S. and China, which prompted volatile trade during the session, the sides “will now follow a timeline stretching over the next half year, during which the two sides will seek to negotiate a new normal,” says a Wall Street Journal analysis. “As the trade negotiations grind on, many investors resigned themselves to more significant price swings in the markets,” says the WSJ, even as many are skeptical that any trade war “will ever come to fruition.”
The broad markets were trading up about 0.50% across the board in mid-day trading. I want to play off of the support the market has found over the past few days in some of the strong technology names. Specifically, I am looking at Splunk, Inc. (Nasdaq: SPLK):
The VantagePoint platform recently indicated a potential upside breakout inSPLK could be forming due to a bullish crossover between 4/3/18 and 4/4/18.
Using the predictive indicators embedded within the VantagePoint platform and its predictive AI technology, we will point out four significant things. We have a bullish crossover indicated by the blue predictive indicator line crossing above the black simple moving average between 4/3/18 and 4/4/18. 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. In addition to this bullish crossover, we see significant support formed by the lows in the $95.00 area. I want to play the VP bullish indication and the support level.
That’s why one could consider entertaining a setup that profits in any case except a move to the downside.
If one were a straight stock trader, simply buying SPLK in the $98.50 area could prove to be prudent. You are anticipating a move to the upside. It’s also a conservative way to enter SPLK 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 $96.00 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 keeping your reward to risk ratio in check. Let’s consider selling the April 13th weekly expiration 97/98 put spread collecting $0.40. Your maximum risk is the width of the spread less any premium collected or $1.00 – $0.40 = $0.60. Your maximum reward is the amount of premium collected or in this case, $0.40. This give you a reward to risk ratio of 1.50:1 ($0.60/$0.40).
Given the trading and market environment outlined above, a trader must evaluate whether this reward/risk ratio is appropriate for his/her risk tolerance.
Position Update Discussion
We highlighted a potential bullish potential in Hawaiian Holdings, Inc. (Nasdaq: HA) back on 3/29/18. Given this bullish indication we showed how you could make a play in HA using options. We used the example of buying the April 20th 40/42 call spread for $0.55. Here’s today’s chart:
You can see that the VP platform performed exceptionally! All indications are still bullish and HA is trading $40.85 in mid-day trade today. The April 40/42 call spread is trading $1.00 now. You can keep this position until we get an indication that the current bullish trend is waning or you can realize a profit of $0.45 which yields an ROI of 81.8%! That will all depend on your risk tolerance.