The Transportation ETF, IYT, is poised to rally, and there are three ways to take advantage of it.
One way is to trade the ETF, but there’s a bigger opportunity in the stock that is likely to lead the ETF’s move higher.
Or, there’s an even bigger opportunity in the options of the stock that’s going to lead the groups move higher.
Read below to review this option trade that has a 300-500% return target.
FedEx (FDX) makes up 10% of the IYT ETF.
UNP and NSC also make up about 10% of the IYT. Each of these look poised to breakout of their respective patterns.
With 30% of the ETF well positioned for a bullish move, you could simply buy the IYT if it trades over $192 and put a stop under $190.
For regular readers of this newsletter you shouldn’t need more of an explanation than that, for a trade idea. So, feel free to run with that idea too.
However, today’s setup is a more interesting opportunity.
As you can see from the chart below, FDX has a big inflection level at $170.
If this level is broken, I’ll look for $185 as the first target, and then $200 as the second over the next 3 months.
FDX announces earnings on September 17th so that makes the $200 target very achievable if earnings surprise to the upside.
With these targets in mind, the FDX October 180/195 call spread provides an opportunity to have a bullish long-term trade on if FDX trades over $170.
This spread is currently trading for around $3 and if FDX is trading over $195 in October it will be worth $12 and potentially $15.
This would be a 300% to 500% return.
If FDX trades over $170 that is the time to enter.
If it fails to continue higher, and then trades under $164 then the trade should be exited.
A stop under $164 should equate to about a 30% loss.
That’s a good level of risk considering the upside could be well over 300%.
Rick Nartarian, Chief Investment Officer
The American Investor Daily