Bears dominated going into the weekend, and they remained in complete control as we start the new week. And that means finding profits on the long side of the market continues to be a game of hide and seek. Though, if you know where to look, there have been rewards aplenty. I’ll share three such areas for this week’s top stock trades.
Much to consumers’ dismay, commodity prices are going through the roof. With the ongoing fighting in Ukraine, oil prices are getting the most attention, but the rising price tide is pulling raw material costs everywhere higher.
Over the weekend, as governments worldwide discussed the feasibility of halting the import of Russian oil, crude prices skyrocketed to $130. Energy stocks are benefiting big time in trading today.
Elsewhere, aerospace and defense stocks are surging amid expectations that governments will ramp up defense spending. Finally, consumer staple stocks are getting a boost as investors seek safer places to park their cash. Here are three ways to capitalize on these themes.
Let’s review each red-hot chart and build an options trade to profit.
Top Stock Trades: Halliburton (HAL)
Halliburton was one of the few oil stocks that wasn’t already overbought this week. It was in an uptrend, to be sure, but prices had skated sideways for the past month. The consolidation created a trading range to play breakouts from. It also made it easy to build a favorable risk-reward trade.
This morning, buyers weren’t waiting, and HAL is already up 7%. Volume has exploded, and we will end the day with a huge accumulation bar. While there’s always a chance the breakout fizzles, the bullish backdrop for all things oil-related makes it unlikely. Any weakness over the coming days will likely get gobbled up quickly.
To capitalize, I like buying call spreads.
The Trade: Buy the April $35/$40 bull call spread for $2.10.
You’re risking $2.10 to make $2.90 if prices climb past $40.
Raytheon (RTX)
Defense stocks have exploded higher, and many are too extended to chase. But with its pullback pattern, Raytheon offers a decent entry if you think the uptrend has legs. And the long-term trend would certainly suggest so. By breaching $100, we’ve taken out a resistance zone that’s been in place since 2018.
It also places RTX stock at an all-time high, which is a bullish omen. The 20-day, 50-day, and 200-day moving averages are climbing steadily beneath the price and should provide potential support during any downturns.
Monday’s early-morning price jump is fizzling, so I’d look for a new trigger to pull you into a bull trade. Breaking a previous day’s high or building an intraday uptrend are two signs you could use. I like selling put spreads for a higher probability of profit in either case.
The Trade: Sell the April $90/$85 bull put spread for around 55 cents.
Consider this a bet that RTX stays above $90 for the next month.
Top Stock Trades: Costco (COST)
The final admission for this week’s top stock trades takes us to the consumer staples sector for a lower beta shopping play. Costco has enjoyed a monster run following the pandemic. And, though it fell nearly 20% in the first month of the year, prices have since stabilized, and we’re now pushing above resistance zones.
Last week saw COST stock reclaim the high side of the 50-day moving average. Quarterly earnings came and went without drama, so the bullish trend reversal remains intact. Prices were popping on Monday, making this a good time for buying — if you can ignore the ugly market backdrop.
Costco’s high share price makes entering options spreads the logical choice. The high implied volatility works to the advantage of a put spread.
The Trade: Sell the April $480/$475 bull put spread for 70 cents.
You’re risking $4.30 to make 70 cents if COST sits above $480 at expiration.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article.
