The dominance of the technology sector has been on full display lately. Internet stocks helped the Nasdaq Composite briefly reclaim the vaunted 10,000 level today. And before the markets’ nosedive, the Nasdaq-100 ETF (NYSEARCA:QQQ) moved a whisker away from hitting a new 52-week high.
With all the relative strength, it’s impossible not to bet with bulls right now. And that’s what today’s gallery is all about. In finding the ideal candidates, I focused on internet stocks to buy that are either breaking to new highs or close to it. Two of the three are pushing to record highs. The third is a ways off but just hit a recovery high this morning.
Here are the three companies in the spotlight:
After breaking down their price charts, I’ll reveal my favorite options strategy for capitalizing on their continued ascent.
Internet Stocks Breaking to New Highs: Crowdstrike Holdings (CRWD)
This week marked the end of Crowdstrike’s first year as a public company. As with most stocks in their infancy, CRWD stock has seen its fair share of temper tantrums and high volatility along the way. Today’s gain from its opening price may not impress you, but the ascent from March’s low will.
Since bottoming mid-March at $31.95, the cybersecurity company has seen its share price explode higher by 225%. The gains make it one of the best-performing internet stocks in the post-novel-coronavirus era.
Friday’s rally pushed the stock to a record high, and signaled a breakout from the base that has been forming over the past month. All major moving averages are trending higher and confirm buyers’ domination across all time frames. With one year now in the books, we have enough data to calculate the implied volatility rank. At 19%, CRWD stock options are trading on the cheaper side of the board, making bull calls a smart play.
The Trade: Buy the Aug $110/$120 bull call spread for around $3.20.
Your risk is limited to $3.20, and the reward is limited to $6.80.
Workday (WDAY)
The gains in Workday haven’t been as explosive as Crowdstrike, but it has been constructive enough to justify including in today’s article. The company is based out of Pleasanton, California, and provides a suite of cloud applications for finance and human resources. WDAY stock was smashed alongside every other risk asset in March, ultimately falling almost 50% before buyers emerged.
The rebound has been impressive, and WDAY has almost recovered all that was lost. Even after rising 70% off the lows, the stock was still able to score a gap higher after its late-May earnings report. Since then, it has been consolidating as the 20-day and 50-day moving averages have played catch-up.
Thursday’s rally finally pushed WDAY stock above resistance and signaled the next ascent could finally be starting. With an implied volatility rank of 32%, premiums are cheap enough to support a bull call spread.
The Trade: Buy the Aug $190/$200 bull call spread for $3.75.
Your risk is limited to $3.75, and the reward is capped at $6.25.
Splunk (SPLK)
Splunk shares have followed in the footsteps of Workday. Its resurrection off the March lows was as epic as the other internet stocks, but it still had enough power to surge higher after May’s earnings report. Unlike WDAY, however, SPLK stock was able to climb to an all-time high.
Each moving average is toeing the bullish line by rising in support of the price. Volume has been dwindling during the consolidation, which is a good thing. It should make it easier for the next breakout to succeed when big buyers return.
Once again, implied volatility is relatively low, and bull call spreads offer a cheap path to profits.
The Trade: Buy the Aug $190/$200 bull call spread for around $4.25.
Your risk is limited to $4.25, and the reward is limited to $5.75.
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