With the S&P 500 Index in the midst of a symmetrical triangle, many stocks have spent their November in consolidation mode.  Indeed, coming off one of the best Octobers in history, many would say some digestion time was more than warranted.

While some stocks have seen consolidation arrive in the form of a symmetrical triangle (like the S&P 500), others have formed ascending triangles or rectangular bases.

Regardless of the variations, the digestion of gains is healthy and often acts as the staging ground for yet more upside.  One such stock finding itself in the midst of an ascending triangle is VMware Inc. (NYSE:VMW).

After rallying 30% in October, this tech player has been resting near the century mark for three weeks before running above $102 in Monday’s trading. With this break above $101, traders looking for bullish exposure to the “cloud” space would do well to consider VMW here before it goes higher.

One play worth considering is the purchase of a January bull-call spread. This call vertical spread provides a limited-risk/limited-reward way to exploit a rise in stock prices.

Given its hedged nature, it also reduces your exposure to adverse moves in volatility and time decay. This spread consists of buying a lower-strike call option while selling a higher-strike call in the same expiration month.

The way to play it is to “Buy to Open” the VMW Jan 100 Call option while you “Sell to Open” at the same time the VMW Jan 110 Call option for under $5. At current prices, you might pay $8.80 to buy the Jan 100 Call and collect $4.10 on the short $110 call, for a net debit of $4.70.

The max risk is limited to the debit paid to enter the trade, and the max reward is limited to the distance between strike prices ($10) minus the net debit.  If entered around $4.70, the max risk would be limited to $470, while the max reward is capped at $530 ($10- $4.70).

Source:  MachTrader

At the time of this writing Tyler Craig had no positions in VMW.