It’s official. All losses doled out by the novel coronavirus have been recovered. Well, at least if you’re the S&P 500. To celebrate the achievement, I’m offering up three stocks to buy that were among the biggest gainers in my watch list on Tuesday.
Despite the market’s reach to new highs, yesterday’s session was quite a mixed bag. While large-cap stocks eked out a small gain, small-cap stocks suffered a large loss, at least compared to recent volatility. The lopsided performance makes those few stocks that stood tall all the more attractive.
Relative strength is always a reason to pursue bullish plays if you can find a quality setup.
The following stocks to buy all offer upside momentum that should continue:
Let’s take a closer look at why the price charts warrant playing, and which options strategies will deliver.
Stocks to Buy: Amazon (AMZN)
Despite a steady drumbeat of new highs in the Nasdaq Composite, Amazon has been treading water for six weeks. Until Tuesday, that is. Yesterday’s 4% jump was the culmination of a beautiful consolidation pattern that allowed the e-commerce titan to digest recent gains. The 20-day moving average caught up along the way, and overbought pressures eased.
AMZN stock’s history of rewarding breakout buyers makes the resistance breach all the more appealing. Volume surged alongside price, rising to 5.3 million shares. It marks the most-active session since last month’s earnings announcement and helps validate the legitimacy of the move.
The following trade offers a 30% return if AMZN stays above $3,150 for the next month.
The Trade: Sell the Sep $3,150/$3,140 bull put spread for $1.15 credit.
Last month’s earnings report was a game-changer for Pinterest, and we’ve seen nothing but constructive price action since. Tuesday’s 2.8% gain brought PINS stock to the brink of a breakout to all-time highs. In my experience, once a recent IPO stock takes out the high of its post-IPO range, it can see explosive upside.
The past two weeks of consolidation have kept Pinterest nestled close to resistance. Any intraday weakness was quickly bought up. As we continue to chew through overhead supply, I think it’s only a matter of time before an upside surge materializes. I suggest $40 as the first upside target.
Implied volatility is down considerably versus before earnings, and that makes premiums cheap for the picking. I like entering call spreads here.
The Trade: Buy the Sep $35/$40 bull call spread for around $1.85. The max loss is $1.85, and the max gain is $3.15.
Stocks to Buy: DraftKings (DKNG)
And that brings us to the final pick on this list of stocks to buy. Last week’s quarterly report for DraftKings removed a great deal of uncertainty that was hanging over the stock. There is always the potential for disaster in the first few earnings report of a newly minted public company. Fortunately, DKNG stock avoided any major drama by holding firm after its number.
Tuesday’s 7.3% ramp marked the return of buyers by pushing the stock above an old pivot high and its 50-day moving average. Combined with the inability of earnings to pull prices lower, the path of least resistance is officially shifting from sideways to higher.
If we can take out the next resistance zone of $38.50, then the deck is cleared for a run back to the all-time highs near $45. DraftKings’ low price tag, coupled with its high volatility, makes naked puts quite attractive.
The Trade: Sell the Sep $30 put for 75 cents. You’re getting paid $75 for your willingness to buy 100 shares if DKNG falls below $30 by expiration. If it doesn’t, you’ll capture the max gain of $75.
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 AMZN, PINS and DKNG.