Previously, we mentioned “BMY has gotten crushed lately and approaching major support on the monthly chart. With volatility increasing on this sell off, I will be watching BMY as a put selling candidate with an exhaustion sell off on the daily, coupled with some type of bullish hourly chart.”
That opportunity is now ripe. Below is the weekly chart of BMY.
It has had a climactic sell off and, as predicted, is finding support on its rising 200-week moving average. Although this is just a moving average, many traders focus on it as a stabilization area and buying opportunity. We agree, provided there is support to the left (there is, not shown), plus other signs of stabilization.
Below is the daily chart of BMY.
It has a “rounding bottom” showing that selling is exhausted and buyers are starting to accumulate.
Below is the hourly chart of BMY.
It has broken out to a new uptrend, with higher highs and higher lows. This is our signal to “strike” with a bullish option trade.
Below is the option trade blotter showing our suggested trade. Although there are many types of bullish option trades that can be deployed based on how bullish you are on BMY, we believe there exists an excellent reward-risk trade in selling the Oct 53 puts and buying the Oct 50 puts (i.e., a bull put spread) for a net credit of $.41/share.
If you sell a 10-lot, this will bring in $410 to your account (less commissions). This is your maximum gain if BMY closes above $53 at Oct 21 expiry. Place a protective stop under $54.80.
Happy trading! If you have any questions or comments, please e-mail Dan Gibby at Dan@gregcapra.com
