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CNBC
10-06-2025
- Business
- CNBC
An options trade on this potential winner from U.S.-China trade talks that minimizes risk
The dominant theme this year has been tariffs, and the elephant in the room remains China. With trade talks resuming in London this week, there's renewed hope for some progress. That said, China is known to be a tough negotiator, and we've seen talks fall apart before. The uncertainty around the outcome turns this into a binary event—one headline could send markets tumbling in a single day. That brings me to the importance of trade management. When you have a clear exit plan, opening new trades becomes much easier and objective. For this setup, my exit strategy is very aggressive, which I detail below. But first, let's look at the technical indicators that led me to take this trade. MACD (5,13,5): I like to incorporate the MACD indicator into my analysis from time to time because it's a reliable tool for spotting early entry signals. While the traditional MACD can be a bit slow to react, I often rely on a short-term MACD to catch momentum shifts sooner. A bullish crossover, where the MACD line crosses above the signal line, often serves as an early cue to consider entering a trade. In BABA's case, we just saw this faster MACD generate a bullish crossover on June 3, pointing to a potential early entry opportunity. DMI (Directional Movement Index): The DMI (Directional Movement Index) consists of three components: DI+ (green), DI- (red), and the ADX (blue), which gauges the strength of the trend. Typically, when DI- is above DI+, it reflects bearish momentum and a prevailing downtrend. But when these lines begin to shift direction, it can signal that a trend reversal is underway. In the case of BABA, we're seeing DI+ start to rise while DI- is declining, indicating that bullish momentum is building as bearish pressure fades—an encouraging sign that a trend change may be in progress. RSI (Relative Strength Index): RSI is a versatile indicator that can be used to identify both reversals and trend continuation. In this case, the reading is as straightforward as it gets—RSI has been steadily rising since 5/30, signaling that bullish momentum is building and the current trend is gaining strength. The trade setup: BABA 121-122 bull call spread To capitalize on the bullish momentum and the potential for a positive outcome from the China talks, I'm using a bull call spread. This strategy lets me risk as little as $50 per trade, and it's easily scalable — simply add more contracts. For example, using 100 contracts means risking $5,000 to potentially earn $5,000, provided BABA closes at or above $122 by expiration. With the stock currently trading at $121.48, the trade is structured by buying the $121 call and selling the $122 call—a clean, defined-risk setup that allows me to participate in the upside without overexposing capital. I dive deep into setups like this in my book, Mean Reversion Trading , and share countless real-world examples on my website . Here is my exact trade setup: Buy $121 call, July 11 expiry Sell $122 call, July 11 expiry Cost: $50 Potential Profit: $50 Risk management Given the binary nature of the upcoming China talks, a negative outcome could trigger a sharp sell-off in stocks with China exposure. Fortunately, debit spreads like this one offer some protection — they're less sensitive to sudden price swings compared to outright long options. One clear exit strategy would be to close the trade immediately if the talks break down. Another, more tactical approach is to use technical analysis. Since the MACD crossover was the basis for entering this trade, a reversal in the MACD — where the MACD line crosses back below the signal line — would serve as a strong technical signal to exit the position and preserve capital. -Nishant Pant Founder: Author: Mean Reversion Trading YouTube, Twitter: @TheMeanTrader DISCLOSURES: Pant has a BABA 121-122 call spread expiring on July 11. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
CNBC
03-06-2025
- Business
- CNBC
When risk-on sentiment returns, here's an options trade on a stock that may lead the charge
After a strong rebound from the tariff-induced correction, the markets have now been moving sideways for the past three weeks. This kind of consolidation is typical — it's how markets build up energy for the next leg, whether that's higher or lower. When risk-on sentiment returns and money starts flowing into growth stocks, the Magnificent 7 typically lead the charge. As that momentum builds, we can expect several trading opportunities to emerge. One stock that appears to be setting the stage is Meta (META) , which has been range-bound since May 14th and looks poised for a breakout. To confirm this potential setup, I'm relying on several technical indicators that can help validate the breakout and improve the probability of a successful trade. MACD (5,13,5): Since the traditional MACD is slower to react, I often use a short-term MACD to capture earlier entry signals. A bullish crossover, where the MACD line moves above the signal line, can be a helpful early indicator for starting a position. That said, the quicker sensitivity of this version also means it can produce more false positives, so tight trade management is essential. A common approach is to close the trade if the MACD line dips back below the signal line, suggesting momentum is fading. In the case of META, we just saw this faster MACD trigger a bullish crossover on May 30, 2025, offering a potential early entry point. DMI (Directional Movement Index): The DMI (Directional Movement Index) is made up of three components: DI+ (green), DI- (red), and the ADX (blue), which measures overall trend strength. When DI- is above DI+, it generally indicates a downtrend. However, when these lines start to reverse direction, it often signals a potential shift in trend. For META, the DI+ line is spiking sharply upward, suggesting a strengthening bullish trend and offering early confirmation of a possible breakout. Support/Resistance Even without relying on technical indicators, a simple look at price action reveals that META is testing a key resistance zone. A decisive breakout above this level would serve as strong confirmation that the stock is ready to push into the $700s in the near future. The Trade Setup: META 670-675 Bull Call Spread To take advantage of a potential breakout in META, I'm deploying a bull call spread. With the stock trading near $670.90, the position is built by purchasing the $670 call and simultaneously selling the $675 call, creating a defined-risk trade. If META ends up at or above $675 by June 27th, the trade stands to deliver a 100% return on the amount invested. This setup provides a cost-effective way to gain upside exposure while keeping risk tightly controlled. Here is my exact trade setup: Buy $670 call, June 27th expiry Sell $675 call, June 27th expiry Cost: $250 Potential Profit: $250 I explore many such setups in depth in my book, Mean Reversion Trading , and there is a plethora of great examples on my website . -Nishant Pant Founder: Author: Mean Reversion Trading Youtube, Twitter: @TheMeanTrader DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
CNBC
20-05-2025
- Business
- CNBC
A dip-buying strategy for healthcare as UnitedHealth's woes hang over the sector
UnitedHealth has been a major drag on the healthcare sector, but is finally showing signs of a turnaround. This shift in sentiment is starting to show up across many healthcare securities — including the Health Care Select Sector SPDR Fund (XLV) , Humana (HUM) , Eli Lilly (LLY) , Merck (MRK) , AbbVie (ABBV) and others. While I could've chosen UnitedHealth for this trade, the stock is currently surrounded by controversies and analyst downgrades. So instead, I've decided to focus on Humana, which offers a cleaner set-up with fewer headline risks. For this trade, I'm relying on three technical indicators to build a directional bias. MACD (5,13,5) - Since the standard MACD is a lagging indicator, I've discussed using a short-term or "faster" MACD in past articles to help generate earlier entry signals. A bullish MACD crossover — where the MACD line crosses above the signal line — can act as a cue to start building positions sooner. That said, a faster MACD is more sensitive to price movements and can produce more noise, making trade management even more important. A good rule of thumb is to exit if the MACD crosses back below the signal line, which may indicate momentum is fading. In HUM's case, we saw a bullish MACD crossover on May — giving us an early signal to consider entering the trade. RSI (Relative Strength Index): This move was further validated by the RSI, which bounced off oversold territory on 5/15 and has been climbing sharply since. DMI (Directional Movement Index): The DMI consists of three components: DI+ (green line), DI- (red line), and ADX (blue line). When the DI- is above the DI+, it typically signals a downtrend. But when these lines begin to shift direction, it often hints at a potential trend reversal. In HUM's case, both the DI- and DI+ have started to turn, offering an early signal that a trend change may be underway. As broader markets rebound sharply from the recent tariff-driven correction, we're approaching a zone where resistance could start to kick in. This makes it an ideal time to consider rotating into more defensive sectors like Health Care or Consumer Staples — a smart way to balance your portfolio while locking in some protection. The Trade set-up I'm looking to take advantage of a potential upside move in HUM using a bull call spread. With the stock currently near $247, the trade involves going long the $245 call (in-the-money) and simultaneously selling the $250 call (out-of-the-money) to complete the spread. If HUM finishes at or above $250 by the June 13th expiration, the trade would deliver a full 100% return on the amount risked. This setup provides a balanced way to play the upside while keeping risk tightly controlled and clearly defined. Here is my exact trade setup: Buy $245 call, June 13th expiry Sell $250 call, June 13th expiry Cost: $250 Potential Profit: $250 You'll find many more setups like this — broken down step-by-step — in my book Mean Reversion Trading . I also share hundreds of real trade examples on my website: . -Nishant Pant Founder: Author: Mean Reversion Trading Youtube, Twitter: @TheMeanTrader DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
CNBC
29-04-2025
- Business
- CNBC
This defense stock got rocked after earnings. How to bet on a rebound with options
Northrop Grumman Corp (NOC) plunged after missing earnings expectations last week. While this was definitely material news, a look at the three-year weekly chart shows the stock finding solid footing around the $450 multi-year support level — and it's already starting to show signs of a rebound. Even though several analysts have trimmed their ratings, the median price target still sits at $545 — a lot higher than where NOC is trading right now. Also worth noting: Northrop is part of the industrials sector, and a quick glance at XLI — the Industrials Select Sector SPDR ETF — shows that the group is looking strong and actively participating in the broader market recovery rally. Technical Indicators To zero in on a trade setup, I'm layering in a couple more technical indicators to confirm the signal and improve the odds of success. RSI (Relative Strength Index): Notice that the RSI pivoted on 4/22 and is now moving sharply higher, signaling a potential shift in trend. DMI (Directional Movement Index): The DMI (Directional Movement Index) is made up of three lines: the DI+ (green line), the DI- (red line), and the ADX (blue line). When the DI- (red) is above the DI+ (green), it signals a downtrend. But when these lines start to change direction, it often points to a potential shift in the current trend. In this case, the DI- (red) pivoted on 4/22, and the DI+ (green) followed with a clear reversal on 4/25, giving even more confirmation for this trade setup. To take a bullish trade on NOC, I'm setting up a strategy known as a "bull call spread." This involves buying the $480 call and simultaneously selling the $485 call, combining them into a single trade structure The trade Here is my exact trade setup: Buy $480 call, May 30th expiry Sell $485 call, May 30th expiry Cost: $250 Potential Profit: $250 If NOC trades at or above $485 by the expiration date, this trade could yield a return of 100% on the amount risked. With 10 contracts, this equates to risking $2500 to potentially gain $2500. I dive deep into setups like this in my book Mean Reversion Trading , along with hundreds of real trade examples available on my website: . -Nishant Pant Founder: Author: Mean Reversion Trading Youtube, Twitter: @TheMeanTrader DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
