Ever since cratering on earnings in the Spring, Yelp Inc (NYSE:YELP) has been on the mend. And in light of its recent retracement to key support, YELP stock has one of the best setups on the board today. It’s a classic low-risk, high-reward setup beckoning for opportunists to come and play.
We’ll shortly dive into a tempting trade idea, but first, a bit of history is in order.
May’s high volume plunge turned into a capitulation event for the ages. The overnight, 18% bludgeoning sent weak hands everywhere scurrying to the safety of the sidelines. The earnings miss was simply too scary to warrant holding YELP stock any longer. Participation during the downdraft was record-setting as the company scored its largest one-day volume reading since bursting onto the public scene in 2012.
Unfortunately, these nervous nellies bailed at the bottom. Since then, Yelp has ascended 54% amid an epic comeback. It obviously helped that the next earnings release in August bested expectations, delivering a mouth-watering jump-start. The ongoing seven-day pullback has ushered the stock to its rising 50-day moving average, making this a potential area to watch for a turn higher.
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With the equities market knee-deep in bullish optimism and Yelp stock flashing its cleanest pullback setup in months, a trade idea is in order.
The YELP Trade
To avoid buying a dip that keeps dipping, I suggest waiting for confirmation that YELP stock is beginning to rise once more.
Use a break of Monday’s high ($43.98) as your trigger to buy the Jan $43 Calls for around $4.25. To limit the risk, exit if the stock breaks below support at $42. For a profit target, consider using the prior pivot high of $46.76.
YELP does have earnings coming up on Nov. 2, so consider exiting the trade before then if you haven’t already been stopped out or reached the profit target.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want to learn how to master the art of option selling for high-probability cash flow? Check out Tyler’s recently released video series through Tackle Trading on how to systematically sell iron condors for monthly income.
