[Options] Cloudflaring

Sean McLaughlin
November 29, 2023

During our Analyst meeting this morning, the idea I brought to the table was a long bet in Cloudflare $NET.

I like that it's just starting to break above a level of resistance that has been in place for the better part of two years.

My initial thought was to make a short-term tactical bet on a run to $100, but then I noticed that in the June options expiration series, the highest strike available is $110. Clearly the CBOE doesn't read All Star Charts research and our belief that this stock could touch $130 per share over the next 3-6 months!

Check out this chart of $NET and you'll see a move to $130 doesn't seem that outlandish at all:

In a recent 2-to-100 Club report, my analyst Alfonso Depablos had this to say:

CloudFlare is trading at fresh 52-week highs and is looking to reclaim a critical level of interest after carving out an 18-month bearish-to-bullish reversal pattern. If it’s above 78, we’re buyers looking for a fresh leg higher.

On a relative basis, NET is also trying to work its way higher from a similar basing pattern versus the broader market. If we see a breakout on absolute terms, we expect the relative trend to resolve higher as well.

We only want to own NET if it’s above 78, targeting 130 over the next 3-6 months.

Today's trading action in $NET is our signal that it's time to get busy!

Here's the Play:

I like buying $NET June 100 calls for approximately $6.00 per contract. This debit I pay is the most I can lose in a worst case scenario.

But I'll look to limit my losses when either one of two things happen:

  1. The calls lose 50% of their value, or
  2. NET closes below $72 per share.

Whichever ever comes first.

Meanwhile, if $NET follows through and makes a run at our strike price (100), I'll look to take a portion of my position off on any trading to/through $100 per share, recapturing my initial investment dollars, and then I'll hold the rest for a run at the team's $130 price target.

If you have any questions on this trade, please send them here.

If you missed last week’s video Jam Session, you can catch a replay on Stock Market TV.

~ @OptionsSean

P.S. We do trades like this regularly. If you'd like to leverage Best-in-Class technical analysis into smarter directional options trades, try out All Star Options Risk Free! Or give us a call to learn more: 323-421-7910.

 

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