When looking at the above chart on Google, you would probably determine that you were bullish based on the trend of the stock. The stock has done a pullback and all 3 indicators are heading back up. You might be concerned about the resistance at $500 especially if you looked back a few years. However, there seems to be a support at $480. What type of trade would you make or would you even make a trade? Here is a possibility. You might consider doing an in the money bull call spread. I’m not going to explain spreads here. This is just giving an idea to people who already know spreads.
As of tonight 10/6/09, the current month $470 call is asking $33.60 and the $480 call is bidding at $25.70. This means a market order for 1 spread would cost $790. On a spread of 10 between strike prices, the maximum gain would be $210. To get the maximum gain, the stock just needs to stay above the support at $480 for the next 10 days. If the stock stays above $480, the return would be 26.5% (not including commissions) for less than two weeks. Not a bad return. The stock would have to break support at $480 (over an 18 point drop) to not get this return.
By Scott Chandler
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