Mobileye (MBLY) was a standout amid an otherwise dismal, go-nowhere trading session on Wall Street Tuesday.
The software stock soared 5% on heavy volume while the S&P 500 ended the day virtually unchanged. MBLY is a popular stock among momentum enthusiasts due to its penchant for volatile swings. It knows how to bust a move and for traders on the right side of said move, profits come quickly.
Yesterday’s rally ushered MBLY stock right to an important overhead resistance level in the $49 zone, presenting a textbook breakout setup.
As shown in the accompanying chart, Mobileye stock has been forming a base for two months above its rising 50-day moving average (blue line). Given the strong run from its early March low near $32, the ongoing consolidation has been a well-deserved respite for the once over-heated stock.
With all the moving averages now caught up and accumulation days returning MBLY looks poised to continue its advance.
All that’s needed is the all-clear signal provided by a break of the aforementioned resistance zone.
As Mobileye has matured as a public stock its option prices have become progressively cheaper. Risk is priced as low as its ever been in MBLY, and implied volatility recently reached a new all-time low at 33%.
What all that means to the everyday traders is that MBLY options are on sale. If you’re inclined to play the coming breakout, consider snatching some long calls on the cheap.
Buy the Sep $48 calls for about $3.50. The maximum risk is limited to the initial $3.50 debit and will be lost if MBLY sits below $48 at expiration.
The maximum reward is unlimited allowing you to participate in any further upside fireworks in MBLY for the next three months.
Rather than piling into the call options now, you could wait for MBLY to takeout the $49 resistance zone to confirm the breakout before pulling the trigger.
At the time of this writing Tyler Craig had no positions in any of the aforementioned securities.
