Traders returning from the long weekend were greeted with a sea of red on Tuesday. While the one-day swoon only took the S&P 500 down 1%, it certainly seemed worse given the low volatility backdrop of the market.
As with all selling frenzies, the damage wasn’t meted out equally. Some stellar stocks, like FireEye Inc (NASDAQ:FEYE), were able to escape the liquidation relatively unscathed.
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The cyber security company boasts a price chart littered with bullish developments. Here are the top three.
- Base Building. Since its rapid ascent in February following earnings, FEYE stock has spent the past few months building a healthy base. This has allowed the stock to work off any overbought pressures and build a launching pad for its next advance.
- Accumulation Abounds. Over the past two months, FEYE has experienced no less than nine separate high-volume up days, suggesting heavy and consistent institutional buying. Continued buying aggression by the big boys should propel the stock higher in the coming weeks.
- Easy Entry. The $46 level has thus far kept a lid on FireEye’s stock price. A breakout above this level would complete its base formation and signal the potential start of its next up-leg.
Light It Up With FEYE Call Spreads
Traders eying the setup in FEYE with interest have a couple options with timing the entry. You could enter a bullish option play now in anticipation of the breakout or wait for FEYE to breach the $46 resistance level, then pull the trigger.
Either way, the trade worth consideration is buying the FEYE Jul $45/$50 call spread for $1.50. The vertical spread consists of simultaneously buying the July $45 call and selling the July $50 call. The premium received from the short 50 call partially finances the purchase of the $45 call, which reduces the overall cost — and therefore risk — of the trade.
The max risk is the initial debit of $1.50 and will be lost if FEYE stock sits below $45 at expiration.
The max reward is the distance between strikes minus the net debit, or $3.50, and will be captured if FEYE can vault above $50 by expiration.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
