by John Lansing | November 15, 2011 9:00 am
“Chips and dips” aren’t just for Super Bowl parties anymore. In the markets, they go equally well together, and best of all, you don’t regret overdoing it the next day!
Buying chipmakers’ call options when their prices dip means you’ll be positioned to potentially double your money when they run higher. And today, I have two call option trades for you that are designed to do exactly that.
Qualcomm (NASDAQ:QCOM) – which designs, manufactures and markets digital wireless telecom products and services based on its code division multiple access (CDMA) technology and other technologies – is ready to explode and break out of this weekly bullish ascending triangle.
Technical analysts pay close attention to how long the triangle takes to reach its apex. The general rule is that prices should break out – that is, clearly penetrate one of the trendlines — somewhere between three-quarters and two-thirds of the horizontal width of the formation.
The breakout, in other words, should occur well before the pattern reaches the apex of the triangle. This is great news for a stock like QCOM that is on the cusp of breaking out to new decade highs!
The trade here would be to buy the QCOM Jan 60 Call options on any dip under $1.50, with a price target of $3.
Another chip to buy on a dip is ARM Holdings (NASDAQ:ARMH) — which designs microprocessors, physical intellectual property and related technology and software, and licenses/sells development tools to electronics companies – is ready to explode and break out of the 2011 bullish rectangle, which is also known as an “upside breakout pattern.”
An upside breakout occurs when the price of a stock breaks out through the top of a trading range. This indicates that prices will rise explosively over a period of days or weeks as an almost vertical uptrend appears. The “narrowness” of the trading range can also be used to gauge the breakout.
To determine the narrowness of the trading range, compare the upper boundary with the lower boundary of the trading range. If the trading range has a small difference between the upper and lower boundary (making it narrow) then the breakout is considered stronger and more reliable.
The trade here would be to buy the ARMH Jan 30 Call options on any dip under $2, with a target price of $4.
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