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Trade of the Day: Take-Two Interactive Software (TTWO)

Take advantage of bullish trends with calls, but don't neglect puts


Our indicators are giving bullish readings, an upgrade over last week’s bullish to neutral, as all three major indexes are in primary bullish trends. Also, eight of nine S&P sector indexes are bullish. The only laggards among the price indexes are the utility averages, which could be an indication that traders are willing to take on more risk at the expense of “safe haven” utility stocks. And the Nasdaq is feeling the weight of continued weakness in Apple (NASDAQ:AAPL) and is struggling to stay in its primary bullish trend.

A possible move into riskier assets is also visible in two primary safe haven indexes, the iShares Barclays 20+ Yr Treasury Bond ETF (NYSE:TLT) and the PowerShares DB US Dollar Index Bullish ETF (NYSE:UUP). TLT has fallen out of its recent bullish trend and looks to be headed toward key support at $122. This is happening even as the Federal reserve announced that it will continue to buy massive amounts of T-bonds as part of its money-printing program. That kind of central bank support should be bullish for bonds. For its part, UUP has returned to a bearish trend following a brief spurt higher last month.

Another trend that is arguing in favor of strength in stocks is weakness in commodities. Two key components of both inflation and the economy, oil and natural gas prices, are bearish (measured by the United States Oil Fund (NYSE:USO) and United States Natural Gas Fund (NYSE:UNG) respectively), as are many other commodity ETFs. Commodity weakness generally paves the way for lower interest rates and higher bond prices, so TLT moving in concert with commodities is an interesting development for stocks.

With our indicators remaining bullish, options buyers should continue to buy calls. But don’t forget about puts, especially for insurance purposes. Volatility indexes remain historically low, even with the ongoing budget shenanigans in Washington, which makes buying puts for portfolio insurance relatively cheap. And as it has been for the past few weeks, the safest course of action is to scale back on your trading on all levels until the political uncertainty clears.

Recommendation: Buy Take-Two Interactive Software (NASDAQ:TTWO) Mar. $15 Call options at 55 cents or lower, when the stock price is around $13. After entry, take profits if the stock price hits $14.40  or the option price reaches $1.10. Exit if the stock price closes below $12.30 or the option price falls to 40 cents.

Ken Trester is editor of the popular Maximum Options program. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.

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