Greg Harmon of Dragonfly Capital highlights five different ways for option traders to capitalize on a bullish flag pattern currently in play for popular energy stock ConocoPhillips (COP).
ConocoPhillips (COP) is in a bull flag between $76 and $78 after rising from $67.50 and through previous resistance at $73. Note that the move took one month to complete. The Relative Strength Index (RSI) is bullish and turning back higher, creating a seven-day positive reversal with a target of $78.31.
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The Moving Average Convergence Divergence (MACD) indicator has been trending lower as the flag continues and is now negative. Looking to the left of the chart shows that there is no resistance higher over $78, and below $76 has a relative void of previous volume, which could let it fall through to $75.26 quickly.
There is a target higher on a measured move to $88 on a break above the flag. Support can be found below at $73 and $71.10, followed by $69.45 and $67.50. The trend is higher.
Here are a few trading ideas. (Always be sure to check current pricing to ensure the trade is still valid.)
Trade Idea 1: Buy the stock on a move over $78.15 with a $1 trailing stop
Trade Idea 2: Buy the April 80 calls on a move over $78.15. These were offered recently at 43 cents
Trade Idea 3: Sell the April 72.50 puts on a move over $78.15. These were bid at 34 cents recently
Trade Idea 4: Buy the April 80/72.50 bullish risk reversal on move over $78.15, combining trades two and three for a net debit of nine cents
Trade Idea 5: Buy the May 80/72.50 bullish risk reversal on move over $78.15. This is the same trade as #4, but gives an extra month to work out and can be done for free
By Greg Harmon, trader and blogger, Dragonfly Capital
