There are two types of traders out there – the technicians, who live and die by what the charts tell them, and the fundamentalists, who buy and sell based on a corporation’s overall health and its prospects for future growth.
Many traders swear by their strategies and don’t give much thought to the other guy’s approach. Yet, the people who tend do the best in the markets are usually aware of both a stock’s technicals and the company’s fundamentals, and place their trades accordingly.
However you identify yourself as a trader, here’s an options idea designed to satisfy all kinds of traders.
Eaton Corp. (NYSE:ETN) is a diversified industrial manufacturer with about 73,000 employees. The company has some pretty solid fundamentals and has a P/E ratio of 12.7 over the past 12 months. In the past five years, the company has posted positive earnings and a positive free cash flow.
Technically, since the beginning of October the stock has moved from about $34 to where it is currently trading (just below $49 at this time). Just this past week, ETN got above its 200-day simple moving average, which it hasn’t been able to do in some time, while maintaining a bullish trend.
That makes this a great time to buy the ETN Feb 50 Calls for $1.10 or less.
The long call strategy is relatively straightforward. The trade profits when the stock rises and the call premium increases as the ETN option moves more and more in-the-money (ITM). Maximum profit is unlimited because ETN can continue to rise and the maximum loss is $1.10 if ETN finishes below $50 at February expiration.
Consider entering on this trade idea if the stock can get above Friday’s high, which was $48.82. A practical target for the stock is right around $52, which is a resistance level. The company is expected to announce earnings on Jan. 26.