Looking at the market in the wake of the novel coronavirus, the evidence seems clear: bulls have won the day, and investors bet against them at their own peril. If you’re unsure how to join the growing throng of buyers, don’t worry: InvestorPlace has your back. Today we’re looking at three breakout options trades that will deliver eye-popping profits if current trends continue.
Last week I wouldn’t have been so adamant that buyers held the upper hand. The S&P 500 was struggling under the weight of a potential double top and support break. But all that changed with Thursday’s sharp rebound. The upside follow-through we’ve seen since should be all the confirmation needed to convince skeptics.
If that wasn’t enough, I’ve surveyed the landscape and discovered an overwhelming number of bullish charts. They’re everywhere, but here are three of my favorites.
They all boast breakout patterns that could spell big moves to come. Let’s take a closer look and identify which options trades you should use.
3 Breakout Options Trades for Big-League Profits: Electronic Arts (EA)
Traders on the lookout for companies positioned to profit from social distancing trends were quick to embrace video game stocks. The share prices of Electronic Arts and competitors like Activision (NASDAQ:ATVI) and Take-Two Interactive (NASDAQ:TTWO) have been courting 52-week highs, placing them well ahead of the broader market.
Though we could make a compelling case for all three, EA stock is particularly attractive at its current perch. The stock has a clear high base breakout pattern on the cusp of completion. It’s spent a month treading water, but the rising 20-day moving average is jamming stock price ever-so-close to its ceiling. The coiled spring looks ready to pop.
In situations like this, the bull call spread is one of my preferred options trades due to its compelling risk/reward profile.
The Trade: Buy the July $120/$125 bull call spread for around $2.15. If you want more confirmation before pulling the trigger, then wait for a push above $120 resistance.
Advanced Micro Devices (AMD)
AMD stock is up 3.5% mid-morning, far outpacing the broader market and tech sector today. Relative strength like this isn’t new for Advanced Micro Devices; it’s been a momentum stock for ages, pursued by growth traders everywhere. AMD emerged from the bear market as a market leader and is fast approaching a new record high.
The past four months have formed a larger cup-and-handle pattern. The handle part of the setup has taken on the form of a symmetrical triangle that is trying to break out today. Tack on the rising 50-day and 20-day moving averages, as well as healthy volume patterns, and I see no reason to bet against buyers here.
Like EA, we’re tapping into the power of call spreads.
The Trade: Buy the July $60/$65 bull call spread for around $1.50. By risking $1.50 to capture $3.50, the potential return on investment in this options trade is a juicy 233%.
Mastercard hasn’t recovered as quickly as its predecessors, but it’s making up for lost time this week. Throughout March and April, MA stock’s recovery took on the form of an ascending triangle. The series of higher pivot highs revealed increased buying aggression. But try as they might, bulls lacked the firepower to take the stock price back above the 200-day moving average. For weeks it stood as an impenetrable ceiling.
Aided by a strong market rally, MA finally powered through resistance and officially completed the triangle pattern. The next target is $320, which gives the stock plenty of runway. To combat its high price tag as well as create a low risk versus high reward trade, we’re using bull call spreads.
The Trade: Buy the July $310/$320 bull call spread for $3.35. The risk in this option trade is $3.35, and the reward is $6.65.
For a free trial to the best trading community on the planet and Tyler’s current home, click here! As of this writing, Tyler held bullish positions in AMD and EA.