The S&P 500 is a whisker away from record highs. It has been a long journey from the depths of March, but large-caps have almost completed their round trip. If you’ve been following the action in the Nasdaq, then you know this milestone was simply a matter of time. The technology index eclipsed its peak back in June. With bullish winds continuing to blow, let’s take a look at the best options trades to enter now.
They’re all bullish, for obvious reasons.
Rather than sticking with a specific sector, I cast a wide net to find the most attractive setups. Ultimately, I landed on a diversified list offering a retailer, a casino and a semiconductor company. The benefit of picks from different industries is we’ve increased our odds that one of them works.
With that being said, here are the picks.
After breaking down their charts, we’ll build options trades to profit.
3 of the Best Options Trades to Enter Now: Nike (NKE)
Nike climbed to a new record this week, after seeing a high-volume breakout on Monday. Over 12.5 million shares traded, or roughly double the average daily activity. The surge in participation increases the legitimacy of the resistance breach and makes it all the more likely that the rally sticks.
The momentum increase is pulling the 20-day moving average aggressively higher, and we already sit above the 50-day and 200-day. We’ve now had four days of consolidation since Monday’s jump, creating a clear high base pattern.
Implied volatility is in the basement at the 13th percentile, reflecting just how cheap premiums have become. To capitalize, I suggesting buying call vertical spreads.
The Trade: Buy the Oct $105/$115 bull call spread for $3.90.
MGM Resorts (MGM)
The recovery in MGM is gaining steam. This week’s jump saw the stock tag its 200-day moving average for the first time since falling below it during the March massacre. Of the big casino stocks, the turnaround in MGM looks the most promising.
Since Monday’s up-gap, a textbook pullback has formed created a compelling buying opportunity. The drop has been extremely shallow, confirming that buyers still lurk beneath the surface. So far, the gap area is holding, and that suggests to me that MGM stock wants higher.
Its low price tag makes naked puts an exciting proposition. When you combine the small margin requirement with the still juicy premiums, it creates a high return on investment.
The Trade: Sell the Sep $18 puts for 53 cents.
Consider it a bet that MGM stays above $18. If it does, you’ll capture the $53 max gain.
Skyworks Solutions (SWKS)
The final ticker for our options trades gallery takes us to one of the hottest industries in the market — semiconductors. Skyworks Solutions has been on a tear. It has more than doubled off its 52-week low and just notched another in a long line of new highs. The 20-day moving average has provided support all along the way. Just this week, we saw buyers swarm to buy the dip and keep prices on the north side of this critical line in the sand.
Resistance has cropped up near $150. The ceiling has halted the past three rally attempts, making it the crucial spot to build trades around. Rather than buying in anticipation of a break, I prefer to wait for confirmation. Buying breakouts has a long history of working, and I see no reason why this episode will end any differently than its predecessors.
As far as strategy selection goes, options are priced cheap, with the implied volatility rank at 12%. Couple that with a modestly high price of $150, and bull call spreads become an appropriate fit.
The Trade: Buy the Oct $150/$160 bull call spread.
It’s currently trading for $4.10, but will be more expensive if you wait for the confirmation break of $150 before pulling the trigger.
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 positions in MGM options.