Market Outlook
Our indicators are giving bullish readings, an improvement from last week’s neutral to bullish. The key change was the 200-day Moving Averages Index moving back above its 50-day moving average and returning to a primary bullish trend. This now puts all three of our internal indicators back in bullish trends. So the fall to bearish territory by the 200-day Moving Average Index, which in the past has been a very reliable leading indicator, appears to have been a false alarm.
For options trading investors, momentum is saying to move back more to the call side, especially as they remain cheaper relative to puts. But it is never a good idea to ignore buying puts entirely, and now is no exception. Keep sprinkling some into your portfolio every week if possible. As we’ve recently seen, market momentum in either direction can turn on a dime.
Recommended Fast Options Trade: Brunswick Corp (NYSE: BC)
BC broke above resistance at $24.30 and has moved higher. It should continue moving higher if stocks can continue their rally. Here is the best way to play more strength in Brunswick Corp. …
Buy the BC May 29 Call up to 50 cents ($50 per contract).
After taking the position, enter a good-til-cancelled contingent order to sell this option if the stock hits its target price of $28.10. That should give you an option price of about $1.40, for a 180% profit.
Close this position and cut losses if the stock closes below $24, when the option price should be about 30 cents. The stock is currently trading at $25.43. The computer-simulated probability of this option hitting its target price is 23%.
Recommended Fast Options Trade: AutoNation (NYSE: AN)
AN broke above resistance at $35 and is at its highest price in several years. It also should continue moving higher if stocks continue to rally. Here is the best way to play more strength in AutoNation …
Buy the AN May 37 Call up to 90 cents ($90 per contract).
After taking the position, enter a good-til-cancelled contingent order to sell this option if the stock hits its target price of $37.90. That should give you an option price of about $2.10, for a 133% profit.
Close this position and cut losses if the stock closes below $34.10, when the option price should be about 50 cents. The stock is currently trading at $35.37. The computer-simulated probability of this option hitting its target price is 20%.
** All of our short-term recommendations can be taken for up to three days after they are recommended. Make sure the stock and option prices are close to where they were when we made the recommendation. If after three days you still have not gotten the position filled, cancel the order and wait for our new recommendations, as the profit probabilities may no longer be valid.
Action to Take on Current Position: SRA International (NYSE: SRX)
Close the SRX Jun 30 Call. The position reached its three-week maximum holding period Thursday without hitting its target price.
Profits Taken on Current Position: Humana (HUM)
HUM hit its target price Thursday and the HUM May 70 Call was closed for a 57% profit. Sell-to-close your position now and take all of your profits if you have not already done so.
Ken Trester is editor of the popular Maximum Options program. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.
