The S&P 500 just topped off its best October performance in six years. So much for the seasonal headwinds haunting stocks this year. Instead, a powerful bid beneath the surface continues to propel equities to record highs. Just this week, the small-cap-laden Russell 2000 Index finally broke out of its nine-month range to join the rest of the major indexes at all-time highs. With the continued strength and the historically positive months of November and December in front of us, bullish options trades remain the way to go.
While scanning for the best trade setups, I also came across a bearish idea that demanded a mention in today’s gallery.
Consider it a nod to diversification, as well as a bonus idea if you’re looking for an intelligent way to add negative delta to your portfolio. Social media stocks have struggled this earnings season, and the king of them all currently boasts a low-risk entry for short-sellers.
That said, here are my top picks for playing either side of the market:
Let’s take a closer look at each.
Options Trades to Play Both Sides: Goldman Sachs (GS)
The financial sector continues to deliver compelling bullish charts for traders. Goldman Sachs is up 61% this year and just scored another breakout on Tuesday. The 1.72% rally occurred on above-average volume, confirming big buyers supported the breach. For the past two months, $420 has provided stiff resistance. Now that we’re above it, the stage is set for a year-end run.
Last month’s earnings announcement confirmed the company’s fundamentals are healthy. Since then, any weakness has been short-lived and quickly gobbled up. I suspect that will continue to be the case.
To capitalize, consider purchasing call spreads.
Options Trades: Buy the December $430/$440 bull call spread for $3.80.
You’re risking $3.80 to make $6.20 if GS stock can climb above $440 by year-end.
This week’s boom in small caps helped breathe new life into beaten-down retailers like Nordstrom. Tuesday’s 3.3% rally completed and confirmed a double bottom pattern. Breaking $30 is a serious short-term victory for bulls. Volume swelled over the past three days, bringing legitimacy and higher odds to the resistance breach.
What’s more, JWN lacks any significant resistance until at least $35. That provides an easy path higher or room to run. At 22%, the implied volatility rank is low enough to make buying premium a smart play. Both long calls and call spreads work. I’m partial to the spread route because of the better odds.
Options Trades: Buy the December $30/$35 bull call for $1.80
You’re risking $1.80 to make $3.20 if JWN pushes beyond $35.
Options Trades to Play Both Sides: Meta Platforms (FB)
Meta Platforms (previously known as Facebook) rounds out today’s trio with a classic bear retracement setup. As robust as the current bounce attempt has been, it’s done little in changing the trajectory of the price trend. We still have a series of lower pivot highs and lows in place. Tuesday saw sellers return to create a potential bearish reversal candle. Falling below the day’s low ($323.80) will confirm a new downswing is upon us.
Due to the continued uncertainty surrounding social media stocks, Meta Platforms has a higher implied volatility rank of 42%. This allows us to sell far out-of-the-money options to create a high probability of profit.
If you think FB stock will remain below $375 for the next month, enter the following spread.
Options Trades: Sell the December $375/$380 bear call spread for 50 cents.
You’re risking $4.50 to pocket 50 cents. To reduce the loss, you could exit if prices rise past $375.
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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