Today’s trade idea has been basing for almost a year, and its recent earnings report pushed it above a key resistance point.
Now it’s coiled to breakout which could cause it’s call options to triple quickly, and then some.
Click here for the detailed plan to profit from this explosive set up.
As you can see in the below of International Paper (IP), it exploded through its 200-day moving average (red line) last week.
It’s now flagging back to test that level.
As soon as it resumes its up move, the next target is $48.
While this may not seem like a big move, as you can see in the chart, $48 is the high of a year-long base.
A breakout of the $48 level would create a long-term bottom pattern that could propel IP to $50 quickly and then potentially to $55.
The reason to expect the $48 level to break after it has been the high of the base for so long is that this move to $48 will be the first time IP has been above the 200-day moving average.
The 200-day moving average has historically been a very reliable level of both support and resistance in IP. This is not surprising as it is an institutionally followed stock.
In 2016-2017 the 200-day average defined every major swing low, then after the 2018 top, it has created at swing high every time it was tested.
Hence, the breakout over the 200-day is very significant.
However, we do want to see this break out continue before entering the trade.
The strategy I’d use here is to buy the October 47.5 calls when IP trades over $46.20.
The stop should be under $44.
If you want to get in earlier, a second option is to buy the calls when IP trades over $45.60.
It the trade develops as planned, here’s a strategy to limit your risk and improve the odds of a higher percentage return. When the stock moves up, look to sell the October 50 calls to create a spread.
It’s possible that when the stock is trading near $48 that you may be able to create a spread that only cost you $0.30-$0.50 but will be worth $2.50 if IP is trading over $50 at expiration.
That’s potentially a 500% (or more) gain!
Rick Nartarian, Chief Investment Officer
The American Investor Daily