Time To Do Some Spelunking With SPLK

President Trump will sit down with European Commission President Jean-Claude Juncker today to discuss trade, including tariffs on autos, the sector that could have the most economic impact if it becomes a bigger part of the trade wars. Ahead of the meeting, Trump suggested the two sides should drop all tariffs, barriers and subsidies for “free market and fair trade,” but was skeptical the European contingent would agree to the offer.

Let’s consider Splunk Inc. (ticker: SPLK):

The VantagePoint platform recently indicated downside 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 bearish crossover indicated by the blue predictive indicator line crossing below the black simple moving average from July 23rd to the 24th.  We can combine that with the VantagePoint propriety neural index indicator moving from the GREEN to the RED position on July 18th.  This indicator measures strength and weakness for a 48-hour period, in this case weakness.  The move to the RED position further makes the case for a potential bearish scenario. We also have the predicted high and low below yesterday’s actual high and low indicating further strength.  I want to play the VP bearish 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 a passive, premium credit approach may be the best path to success.

Because of the reasons given above, the sale of a debit call spread may be one way to approach this situation.  You will want to collect the most premium that you can while still staying within your risk parameters.  You may want to consider the SPLK August 3rd weekly expiration 105/106 call spread, selling it for $0.35.  The most you can gain is the premium collected and the most you can lose is the width of the spread less any premium paid.  Max reward = $0.35 and max risk = $0.65.  This means that you are laying odds of 1.86:1.

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