The widespread weakness Monday morning is providing some attractive trading opportunities.
The primary culprit, particularly for the bloodletting in tech, is a data breach suffered by Facebook Inc (NASDAQ:FB), which is taking the stock down over 5% in early trading. For traders willing to keep their wits about them, today’s retreat is creating a chance to deploy bullish options trades.
To reduce risk, we’ve selected a diversified group from three different sectors: financials, tech and biotech. By spreading our bets, we increase the likelihood that we participate when buyers wade back into the waters. All three sectors are moving into the fifth (or sixth) consecutive down day.
While there’s always a chance prices careen lower from here, we believe the end of the pullback is nigh.
And that brings us to today’s selections. Here are three of the best setups on the Street for the coming rebound:
3 Bullish Options Trades: Visa Inc (V)
Visa Inc (NYSE:V) shares top our list with an ascending triangle pattern pointing to higher prices. Its two-month pause has allowed the 50-day moving average to play catch-up.
Overbought conditions have eased in the process, and now Visa stock has a nice base to launch from.
Visa scored a bullish candle on Friday that carried it directly into overhead resistance. This is around the seventh time V has tested overhead resistance at $125, and I suspect its failure is at hand.
If V stock takes out $125, consider entering a bull call spread. Buy the May $125/$130 call spread. Right now, the position is trading for $2.05.
3 Bullish Options Trades: Baidu Inc (ADR) (BIDU)
Our next pick hales from the tech sector.
And although the Nasdaq Composite is down 1.5% at the time of this writing, Baidu Inc (ADR) (NASDAQ:BIDU) is only down 0.6%. I take the relative strength as confirmation that BIDU does indeed deserve its spot in this week’s gallery.
Last week BIDU staged a breakout over $260 resistance, and though it has since retested the old ceiling multiple times, it has yet to fail as a new support level.
The 20-day moving average is also coming into play there and adds to the zone’s significance. Provided BIDU remains above $255 in the days ahead, I see no reason why we shouldn’t view this dip as a buying opportunity.
If BIDU can take out Friday’s high ($263.70), then pull the trigger on a May $270/$280 bull call spread. Currently, the spread is trading for $3.40.
3 Bullish Options Trades: SPDR S&P Biotech (ETF)
Our final selection provides a way to buy the entire biotech sector. Due to the hyper-volatility of the space, I find it easier to structure trades on a diversified ETF then attempt to pick winners and losers.
The SPDR S&P Biotech (ETF) (NYSEARCA:XBI) is now forming the fifth down day of its pullback. With all its major moving averages still pointing higher, buyers deserve the benefit of the doubt here.
Of particular note is the lack of volume accompanying the retreat. Thus far the selling pressure remains muted suggesting we’re seeing a garden variety bout of profit-taking and nothing more.
If XBI can break above today’s high ($93.89), then sell the April $87/$82 bull put spread for around 50 cents.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want more education on how to trade? Check out his trading blog, Tales of a Technician.