A bullish technical pattern on the chart for popular brewer Boston Beer (SAM) presents no less than five potential ways to profit using options, writes Greg Harmon of Dragonfly Capital.
Boston Beer (SAM) is consolidating in a bull flag between $100 and $104 after breaking over $100. It has a bullish Relative Strength Index (RSI) that has stayed that way since rising off of the October low. The Moving Average Convergence Divergence (MACD) indicator is negative, but is near zero and improving toward a positive cross, supporting upside.
See related: Demystifying the MACD Indicator
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The 50-day simple moving average (SMA) made a “golden cross” up through the 200-day SMA three weeks ago just prior to breaking $100, and the price is above all the SMAs. There is support below $100 at $96.80, followed by $95 and $94.
A break of the flag higher has a measured move to $114, and based on past history, it could take a couple of weeks to get there. With that, here is a near-six-pack of ideas for trading it.
Trade Idea 1: Buy January 105 Calls on a Break Over $104
This risks roughly the same capital as buying the stock with a $2 stop but with a Delta of 40 will participate at only 40% of the upside pace in the first week. As it gets closer to expiry, if in the money, it will participate faster as the Delta rises.
Trade Idea 2: Sell January 100 Puts on a Break over $104
This will collect about $1.50 in premium and is a bet that the price will not fall below 100 by expiry. If it does you will be put the stock.
Trade Idea 3: Sell January 95 Puts Now or on Pullback within Flag
This offers greater protection from owning the stock on a fall than Trade Idea 3, all the way down to 95 from but will only take in about 55 cents in premium.
Trade Idea 4: Buy January 105/100 Bull Risk Reversal on Move over $104
A combination of trade ideas two and three was offered at 40 cents late Friday and likely to be had for less than 65 cents on a move to $104. This allows participation on the upside call sooner and with less capital outlay, but with the risk of owning the stock if it closes under $100 at expiry.
Trade Idea 5: Buy January 105/95 Bull Risk Reversal
A combination of trade ideas two and four was offered for $1.45 late Friday. This allows participation on the upside call sooner and with less capital outlay, but with the risk of owning the stock if it closes under $95 at expiry.
By Greg Harmon of Dragonfly Capital
