Trading Central Technical Insight as identified a Bullish Ascending Continuation Triangle Pattern on Western Digital Corp (WDC:NASDAQ) with a measured move target price around $86.
The increasingly higher lows and constant highs within this pattern tell us that buyers are more aggressive than sellers, confirmed by a breakout through a resistance level to signal a continuation of the prior uptrend.
An Ascending Triangle, with its increasingly higher lows and constant highs, indicates that buyers are more aggressive than sellers. The pattern typically forms because a supply of shares is available at a certain price, represented by the upper flat line. When the supply depletes, the shares quickly break out from the top trendline and move higher.
Trading Central Technical Views has an overall bullish preference due to the price action trending above the 50-day moving average and bullish configurations on the MACD and RSI.
With the technical picture looking bullish, we used Trading Central’s Options Insight strategy lab to search for bullish options strategies that limit downside risk.
Back on May 7th, we found a similar bullish setup I wrote about here. The Preferred Strategy was a June 21 expiry 72.50-77.50 Bull Call Spread which is profitable at the time of this writing.
The current preferred strategy outcome is a July 19th expiry 77.50-85 Bull Call Spread for a net debit of appx. $1.61 at the time of this writing. The strategy has a max profit of $503 per contract with a max loss of $247. The Probability of Profit is at appx. 43% which is ideal for a debit spread, and much higher compared to a straight long 77.50 call option.
Notice how last month’s spread sold the June 77.50 call and now we can buy the July 77.50 call and sell the 85 call to complete the spread. We can essentially “Roll” the position from June to July in order to take profit on the June spread which could be closed for appx. $3.00 locking in a $121 profit per contract which is almost 50% of the max profit, riding the trend higher with a new similar debit spread for July.
The Strategy falls in-line with the July 19th expiry volatility cone which provides a realistic expectation of where the stock can potentially move by expiration.
Options Insight was designed to educate retail stock traders that have never considered trading options, the benefits of options strategies that replicate being long stock with less downside risk and learn the importance of volatility and expected price movement in the strike price selection process.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.
Gary Christie is head of North American research at Trading Central in Ottawa.
