With the market under pressure, it's important to look for strong stocks when trying to find bullish option trades.
Pfizer is one such name showing impressive relative strength and ratings.
According to the IBD Stock Checkup, PFE stock is ranked No. 1 in its group and has a Composite Rating of 99, an EPS Rating of 89 and a Relative Strength Rating of 93.
Pfizer stock is also back above the crucial 50-day moving average line.
Previously we've looked at bullish trades with around one to two months in duration.
Some traders prefer trading short-term options, which have the potential to generate much higher gains on an annualized basis.
Assuming someone was looking to trade a bull put spread on PFE stock, they could generate roughly $100 in premium buy selling the Sept. 16, 50-47 spread. The capital at risk on that trade would be $200, so the trade has the potential to generate a 50% return in 53 days.
If the trader instead decided to trade a much shorter-term spread, they could generate roughly $55 in premium buy selling the Aug. 5, 51-49 spread. The capital at risk on that trade would be $145, so the trade has the potential to generate a 38% return in 11 days.
That's a slightly lower return than the first example, but only takes 11 days to achieve that return if the trade works out.
Return Can Exceed 1,200% On Annualized Basis
That equates to a 1,261% return on an annualized basis.
That's a huge number, but don't expect every trade like this to be a winner. Short-term options can be very risky and hopefully we all learned in Finance 101 that high returns come with high risk. So do your due diligence before using weekly options.
Short-term option trades like this are not for everyone, because if they go against you, there is very little you can do to salvage the trade.
Keep in mind that Pfizer is due to report earnings on Thursday, which could have a big impact on the stock price.
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.
Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on Twitter at @OptiontradinIQ
