The Nasdaq Composite’s bid for world dominance continued in earnest on Tuesday, and that has me in a mood to shop for breakout stocks to buy. Despite a down open, buyers swarmed to pull the tech-laden index back into positive territory. That said, the strength of the comeback is the latest in an endless string of examples illustrating why this bull market has been so incredible. Weakness is temporary, and down days are a gift.
As has been the trend of late, Monday’s leaderboard was full of big gainers that far outpaced the major indexes. And since the tech sector is the biggest muscle-flexer in the land, let’s spotlight the top Nasdaq breakout stocks. There was no shortage of candidates to choose from, but I focused on those that cleared key resistance zones on Tuesday — signaling more gains were likely.
The price range varies widely, which opens up a variety of potential options strategies. That said, here are three of my favorite breakout stocks to buy right now:
After breaking down the price chart, I’ll suggest my preferred options trade to capitalize. So, let’s dive in!
Breakout Stocks to Buy: DraftKings (DKNG)
DraftKings has been on my radar ever since its late-April IPO for multiple reasons. First, the volatility accompanying a freshly printed public company makes it a fantastic candidate for options trading. Second, it’s one of the few companies that provides pure exposure to the emerging trend of sports betting.
Monday saw DKNG stock register a breakout on huge volume. Nearly 27 million shares traded as DraftKings gained 9.1%. The rally carried the stock past a significant resistance zone at $38, potentially clearing the way for a run back to its record high at $44.79. And with the groundswell in participation, I like the breakout’s chances for follow-through.
In turn, I have two trades ideas. The first is a high probability theta trade, and the second is more directional.
Trade One: Sell the Sept. $33 puts for around 80 cents.
Trade Two: Buy the Oct. $40/$45 bull call spread for $1.75.
Starbucks has lagged the Nasdaq Composite’s ascent for obvious reasons: It’s a restaurant, not a software stock. As such, it has much more sensitivity to the global pandemic and suffered accordingly. And after the initial snap-back from March’s massacre, SBUX stock got stuck in a range from May to this week.
The entire time, the 200-day moving average was bearing down as an ominous overhead resistance zone. However, then yesterday happened. In a sudden show of strength, SBUX stock ripped 5% amid massive volume. And with over 17 million shares traded, the ubiquitous coffee chain scored its highest volume day since late June. It even outpaced the participation of July’s earnings report response.
Overall, it may take some time, but $90 is the next resistance pivot — and thus, our upside target.
The Trade: Buy the Nov. $82.50/$87.50 bull call spread for $2.10.
Breakout Stocks to Buy: Shopify (SHOP)
Shopify rounds out this list of breakout stocks to buy. It carries a hefty price tag, but we can build a low-cost position using options. Tuesday’s rally created a bullish engulfing candle that caught my eye. After gapping below the prior day’s low at the open, SHOP stock rallied all day long, ending with a wide-bodied bar that completely enveloped the preceding day’s selloff.
It’s a powerful reversal formation that signals just how aggressive bulls pursued SHOP stock throughout the day. It also ushered the stock to the brink of an upside breakout, which transpired on Monday morning. At the time of this writing, Shopify shares are up nearly 4% — confirming the resistance breach and giving even more reason to like the setup.
So, since implied volatility is at the bottom of the barrel, I prefer buying call spreads over bull puts.
The Trade: Buy the Nov. $1,100/$1,120 bull call spread for approximately $8.30.
For a free trial to the best trading community on the planet and Tyler’s current home, click here! At the time of this writing, Tyler held bullish positions in DKNG.