Option Trading: Dynatrace Offers Less Volatility, Stronger Chart Than Rivals
Dynatrace is a good stock for option trading because it is technically strong and has limited volatility.
Microsoft (MSFT), the leader in the battle for cloud computing supremacy, comes to mind. Dynatrace's (DT) technical strength and fundamental growth potential are hard to beat.
Dynatrace ranks No. 2 in the enterprise software industry group according to IBD Stock Checkup. Dynatrace is ranked No. 2 in the Enterprise Software industry group.
This trade is a put spread that expires in June. This gives us a lot of room to play around on the chart and allows theta erosion (time) to work to our advantage.
Option Trading: Bullish Outlook In Near Term
This is a bullish trade and it anticipates that the stock will remain above 40 in the short term.
Buy the DT June 16, expiry monthly 40 put and sell the DT, June 16, expiry monthly 35 puts.
Risk is $3.75
The total spread between strikes is $5.
Dynatrace's break-even point at expiration is 38.75 dollars.
Why should you consider Dynatrace? Cloud computing opens up a world of opportunities that include Salesforce (CRM), Amazon.com(AMZN), ServiceNow(NOW), and Microsoft.
Dynatrace is unique in that it combines technical strength with limited volatility.
Due to this lower volatility our premium is slightly lighter, but the overall risk is higher.
What's the deal? The premium we receive is lower, but the likelihood that we will be able to collect all of the premium is greater than the risk of a loss.
Trade Exploration and Rationale for Decision
The key levels of the chart are identified.
At 38 prices, you can see a supported congestion.
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Scenarios For DT Options Trade
What could happen?
After several days, the stock does not recover its 38-point price. The more we get closer to the expiration date, the less likely it is that you will be able to hold your position.
Consider your risk and what you enjoy about the trade before making a decision.
Anne-Marie Baiynd has been a trader for 20 years, specializing in stocks, futures and options. She is also the author of The Trading Book: The Complete Solution to Mastering Trading Psychology and Technical Systems. She does not hold any positions in the investment topics she covers for IBD. You can use Stocktwits and Twitter at the URL