Let's all raise our glasses for a toast to the outperformers of this bull market.
Ok, now let's get to work finding stocks setting up that will likely catch the next wave of rotating capital flows.
Today's trade is in a name that is slowly becoming a fixture at just about every eating establishment near me, and likely you too.
Here's a one-year chart of Toast Inc, $TOST:
By itself, this is a chart I Iike to buy. But Strazza shares a longer-term chart in the video above that displays the opportunity better.
$TOST is just now showing signs of breaking out of a multi-year base.
But when there is overhead supply to contend with, the breakouts aren't always as clean as we'd like them to be. So we will take advantage of options premiums at out-of-the-money strikes to help keep our cost of participation limited.
Here's the Play:
I like buying a $TOST March 30/40 Bull Call Spread for approximately $2.50 net debit. This means I'll be long the 30 calls and short an equal amount of the 40 calls. The most I can lose is the premium I pay today. And that could be a real possibility if we get a disastrous earnings report next month from Toast.
Assuming there are no disasters in store for us, then I'll look to manage risk and close this spread down if it loses 50% of its value. Additionally, if $TOST sees a closing price below $26.50, I'll close the trade and book the loss. In either case, the market is signaling to me that I'm either wrong or early and it's time to protect my capital.
If we get the follow-through we're looking for, I'll take profits if/when $TOST trades above my short calls strike ($40).
Sean McLaughlin | Chief Options Strategist, All Star Charts
