[Options] Looking for Profits to Drop in this Box
Here's what Steve Strazza had to say about Dropbox $DBX:
...we have the large-cap cloud-software company that provides a collaboration and sharing platform used by organizations all over the world. Here’s a daily chart of Dropbox $DBX:
DBX has been in a steady uptrend over the past 15 months, consolidating constructively at logical levels and resolving higher from multiple bases along the way.
We’re currently right at yet another logical level of resistance as well as the upper bounds of a 3-month basing pattern.
We don’t think it’s any coincidence that the base breakout level and prior highs just about coincide with our primary Fibonacci extension and current objective. We also don’t think there’s any reason why this base should NOT eventually resolve in the same manner as the last handful… Which is higher, in the direction of the underlying uptrend.
And if and when that happens, we want to be buyers of DBX on strength above 29 with a target of 37.50 over the next 1-3 months.
We've got the break above $29 that Steve was looking for and implied volatility in the options is near the lowest levels of the year:
And with a nearby risk management level we can lean against, this sets up one of my favorite and simplest kinds of bullish plays.
Here's the Play:
I'm buying $DBX September 34 calls for around 95 cents. This debit is the most I can lose in this trade if the stock goes sideways or down from here.
During my hold, if $DBX closes below $28 per share, I'll close the position. This would put us back below the resistance level set during the spring and tells me we're too early for any bullish developments. I'll close the position down for whatever I can salvage and patiently wait for another setup from the sidelines.
If the stock goes our way, then I'll look to sell half of my position when I can do so at a double -- around $1.90 per contract. This takes all of my original risk capital off the table and allows me to sit back and let the remaining part of my position make a run at the ASC price target of 37.50, without the stress of worrying about letting a winner turn into a loser.
If you have any questions on this trade, please send them here.
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