Who needs stinking profits to enable strong returns for investors? It depends, but FireEye Inc (NASDAQ:FEYE) could be one of those situations. But for traders willing to speculate on FEYE stock, an intermediate-term, out-of-the-money bull call spread still looks like the most secure platform to operate. Let me explain.
For companies positioned in the right market at the right time and showing sufficient strength beyond actual profitability, returns for investors can be terrific well before the underlying business is able to turn the corner on its own bottom line.
FEYE stock, in our estimation, remains one of these situations.
Most recently, I expressed this bullish, but slightly more speculative opinion on FEYE stock back in mid-June. And since the upbeat, but pragmatic analysis, not much has changed for FireEye (well, except the Petya virus).
Bottom line, Petya has acted as the latest affirmation cybersecurity threats are here to stay. It also reinforces this strategist’s belief that a company like FireEye remains well-positioned in a secular growth market. What’s more, its turnaround-in-progress will continue to build momentum both off and on the price chart.
For some investors, confirmation could come next month when FireEye steps up to the corporate confessional. But for others like this strategist, today’s plan of attack for positioning and keeping future bear viruses at bay includes the FEYE stock chart and a well-contained and sound vertical call spread.
FEYE Stock Weekly Chart
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FEYE’s developing uptrend follows a risqué variation of a classic bottoming pattern. After a scorching rally of around 55% from the mid-March low to mid-May’s intermediate and down-trend breaking high of $16.25; FEYE has been laying the groundwork for higher highs.
Currently, the volatile price action has formed a flat base of nearly two months in length. Alternatively, but also bullish, if FireEye shares can hold above the $14.40 area, some pattern-oriented traders might see the consolidation as a triple bottom on the daily chart.
What’s next? I’ve personally accepted a small price allowance slightly below Thursday’s low as being okay given FEYE’s volatility. However, my wherewithal as a bull in FEYE stock rests with shares rallying from here, rather than attempting to buy on weakness below the noted technical line in the sand.
Ultimately, there’s always going to be some type of price line of some reputed support on the chart. But as a more speculative investment, I want to see positive reinforcement of a turnaround occurring in FEYE stock, rather than buying and holding onto hope and a potential falling knife.
FEYE Stock Bull Call Spread
For like-minded traders interested in FEYE and insisting shares need to move higher from here, I like the Sept $16/$18 bull call spread. With FEYE stock trading near $15.15, the out-of-the-money vertical is priced for 55 cents.
If the strategy sounds familiar, it is. I discussed this position about a month ago with FireEye trading modestly higher within a then, smaller-basing pattern.
Bottom line, nothing has changed to dissuade us from appreciating this vertical as a smarter way to participate in FEYE with reduced and limited risk through earnings while offering sufficient time to profit handsomely should a continued turnaround in progress gain traction.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
