Today, we are using some moving average filters to find bullish stocks and then looking at a couple of different trade ideas.
First the stock scanner:
Which produces these results:
Now that we have some bullish stock candidates, let’s analyze three different option ideas.
PayPal Bull Put Spread
A bull put spread is a defined risk option strategy that profits if the stock closes above the short strike at expiry.
To execute a bull put spread an investor would sell an out-of-the-money put and then buy a further out-of-the-money put.
Running the Barchart Bull Put Spread Screener shows these results for PayPal Holdings (PYPL):
Let’s use the first line item as an example. This bull put spread trade involves selling the August expiry $60 strike put and buying the $59 strike put.
Selling this spread results in a credit of around $0.11 or $11 per contract. That is also the maximum possible gain on the trade. The maximum potential loss can be calculated by taking the spread width, less the premium received and multiplying by 100. That give us:
1 – 0.11 x 100 = $89.
If we take the maximum gain divided by the maximum loss, we see the trade has a return potential of 12.36%.
The probability of the trade being successful is 82.2%, although this is just an estimate.
For Chevron (CVX), let’s look at the bull call spread screener.
Chevron Bull Call Spread
Here are the results of the bull call spread screener:
A bull call spread is created through buying a call and then selling a further out-of-the-money call.
Selling the further out-of-the-money call reduces the cost of the trade but also limits the upside.
A bull call spread is a risk defined trade, so you always know the worst-case scenario. Bull call spreads are positive delta (bullish) and positive vega (benefit from a rise in implied volatility).
The first item on the screener involves buying the October expiration, $160-strike call and selling the $165 strike call.
The trade cost would be $235 (difference in the option prices multiplied by 100), and the maximum potential profit would be $265 (difference in strike prices, multiplied by 100 less the premium paid).
This trade has a max profit potential of 112.77% and a breakeven probability of 43.0%.
The final idea we will look at is a covered call trade on Medtronic (MDT).
Medtronic Covered Call
First, let’s run our covered call screener:
Let’s evaluate the first MDT covered call example. Buying 100 shares of MDT would cost around $8,081. The August 16, $82 strike call option was trading yesterday for around $0.99, generating $99 in premium per contract for covered call sellers.
Selling the call option generates an income of 1.24% in 17 days, equalling around 26.63% annualized. That assumes the stock stays exactly where it is. What if the stock rises above the strike price of $82?
If MDT closes above $82 on the expiration date, the shares will be called away at $82, leaving the trader with a total profit of $218 (gain on the shares plus the $99 option premium received). That equates to a 2.7% return, which is 62.3% on an annualized basis.
Conclusion
There you have three different bullish trade ideas on three different stocks. Remember to always manage risk and have stop losses in place.
Please remember that options are risky, and investors can lose 100% of their investment. This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
On the date of publication, Gavin McMaster did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
