2 Ways to Trade Options on EW
08/30/2011 8:00 am EST
Shares of medical products provider Edwards Lifesciences (EW) are showing a bullish chart pattern that can be traded using one of two possible strategies.
Edwards Lifesciences (EW) has a rising trend off of the bottom from early August. The Moving Average Convergence Divergence (MACD) indicator has been trending higher since the bottom and is crossed positive and increasing. The Relative Strength Index (RSI) has also been trending higher and is rising sharply through the mid line.
The stock is approaching some resistance at $74.50, and it if it can get through that, there is nothing to keep it from reaching resistance at $78.70.
Once through $78.70, the next resistance levels come at $81.50 and $84. Place a stop under $72.50 for an entry now or wait on the break of $74.80 and use a stop just under that.
This could also be played long by purchasing the September 75/80 call spread, which was available near the close for $1.05, closing it out if the stock price moves under $70 as a stop loss.
For the more aggressive trader, the call spread could be funded partially by selling a September 65 put for 35 cents, making a net cost of 70 cents for the options combination but adding the downside risk of owning the stock at $65.70 on a close under 65 at September expiration.
See video: Understanding Debit and Credit Spreads
By Greg Harmon of Dragonfly Capital