U.S. crude has now topped $71 per barrel, soaring over 3% overnight, after President Trump abandoned a nuclear deal with Iran and announced the “highest level” of sanctions against the OPEC member.
Let’s look at Morgan Stanley today (ticker: MS):
The VantagePoint platform recently indicated a potential upside breakout in MS could be forming due to a bullish crossover between 5/7/18 and 5/8/18.
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 5/7/18 and 5/8/18. We can combine that with the VantagePoint propriety neural index indicator moving from the RED to the GREEN position two trading periods before. 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.
For traders with a short 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. First order of business is to determine your target strike. To do this you will need three pieces of information: current price, option expiration date and at the money implied volatility for that expiration. In this case, the calculation yields a target price of approximately $55.00. One may consider the MS May 18th Regular Expiration 54/55 call spread, paying $0.25. You max risk is the amount of premium you pay, the max reward is the width of the spread less any premium paid. In this case max risk is $0.25, max reward is $1.00 – $0.25 = $0.75. This gives us a reward to risk ratio of 3:1!
Given the trading and market environment outlined above, a trader must evaluate whether this reward/risk ratio is appropriate for his/her risk tolerance.