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:
The two companies we’re going to look at that meet our criteria are Arm Holdings (ARM) and Truist Financial Group (TFC).
ARM Holdings 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 ARM:
Let’s use the first line item as an example. This bull put spread trade involves selling the November expiry $140 strike put and buying the $130 strike put.
Selling this spread results in a credit of around $2.80 or $280 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:
10 – 2.80 x 100 = $720.
If we take the maximum gain divided by the maximum loss, we see the trade has a return potential of 38.89%.
The probability of the spread ending out-of-the-money is 63.81%, although this is just an estimate.
For TFC, let’s look at the bull call spread screener.
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 results shows a trade that involves buying the December expiration, $42.50-strike call and selling the $45-strike call.
The trade cost would be $1.22 (difference in the option prices multiplied by 100), and the maximum potential profit would be $128 (difference in strike prices, multiplied by 100 less the premium paid).
This trade has a max profit potential of 104.92% and a profit probability of 46.3%.
Conclusion
There you have two different bullish trade ideas on two 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.
