The S&P 500 inched to another record last week, but boy, oh boy, has realized volatility tanked. The 5-day and 20-day historical volatility readings are plumbing the single digits. This is what the summer doldrums feels like. But just because the broad market is sleepy doesn’t mean we can’t find opportunities beneath the surface. So today, we’re sharing three top stock trades to consider.
Some might argue the volatility lull is a reason for bearishness. I would remind them of the conventional wisdom that warns against shorting a dull market. It’s harder than it looks. Until the trend turns and support levels fail, I suggest betting pausing patterns like what we’ve seen in the S&P 500 recently will resolve themselves higher.
Today’s picks offer plenty of diversification. I went where the patterns led me, and in this case, I found a nice mix of completely unrelated industries.
Let’s take a closer look at each price chart. Then, we’ll build an options trade to profit.
Top Stock Trades: Farfetch (FTCH)
Farfetch is a London-based technology platform for the fashion industry. Since their late-2018 IPO, the stock has been a staple among the growth/momentum crowd. However, it didn’t really capture traders’ attention until last year following the pandemic. It ultimately ran from $6 to $74 before retreating.
Its February to May downtrend was nasty but necessary for shaking out the excess. And now, we have a new uptrend beginning to form. After breaching back above the 50-day moving average, FTCH formed a high base pattern triggering this morning. The stock is already up 5% as I type and could be poised for a run to $60.
Implied volatility is at the 2nd percentile of its one-year range, making long premium plays the go-to choice here.
The Trade: Buy the July $55/$60 bull call spread for $1.10.
Blackstone Group (BX)
Some bank stocks have been turning lower over the past two weeks because of weakness in bond yields. But not all financials are created equal. What’s been negative for JPMorgan (NYSE:JPM) and Bank of America (NYSE:BAC) hasn’t hurt Blackstone Group at all. The relative strength is on full display this morning. While the financial sector is down 1.2%, BX stock is up 1%.
Blackstone has been trending higher above rising 20-day, 50-day, and 200-day moving averages. It had a clean high base pattern coming into this week that is triggering with today’s pop.
Traders are eyeing $100 as the next stop. The century mark tends to act like a magnet when prices push past $90. Like FTCH, BX has cheaper options. That, coupled with its steady uptrend, signals a bull call diagonal spread is appropriate.
The Trade: Buy the September $92.50 call while selling the July $100 call for a net debit of $5.55.
If BX pushes to $100 near July expiration, you should be able to pocket a $2 profit per spread.
Top Stock Trades: Philip Morris (PM)
Over the past month, Philip Morris developed a tight trading range at the top of its trend. And, so far in 2021, buying breakouts has been a moneymaker for traders gaming the tobacco company. As a consumer staple stock, PM is the low beta choice for this week’s top stock trades. If the hyper volatility of FTCH is too crazy for you, then PM is a great alternative.
With this morning’s push, Philip Morris is now up 20% year-to-date. And I see no signs of the good times stopping. The theme of low implied volatility continues with PM. I prefer cash flow trades over directional ones for two reasons. First, the higher probability provides more outcomes where we still depart with a profit. And second, the stock is a slower mover.
The Trade: Buy the September $97.50 call while selling the 23 July $103 call for a net debit of $3.40.
If PM sits close to $103 at expiration, you will score a profit of $2 per spread.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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