Baidu (BIDU) has held up very well over the last few weeks at the price action has consolidated around the 20-day EMA. The stock will likely pick up momentum this week to the upside, barring systemic risk, and re-test the February highs over the next month of trading.
BIDU is a fan favorite for momentum traders and the techincals are pointing to a clear breakout of the consolidation levels. By opening a bull call spread, we can take on limited risk defined to what we pay for the spread while potentially tripling our money over the course of 30 days.
We can sell the April 135 calls and buy the April 130 calls for a net debit of $1.25. To find our potential return, we subtract the difference in strikes from the net debit, giving up a potential return at expiration of $3.75. We will open 2 contracts on each leg, meaning our total risk is $250 with the potential return of $750 at April expiration (25 days) if the underlying stock is trading above $135 per share at expiration.
Trade Idea:
BUY +2 VERTICAL BIDU 100 APR 11 130/135 CALL @1.25 LMT
Trade Details:
Type: Bull Call Spread
Expiration Month: April
Breakeven Level(s): $131.25
Maximum Gains: $750
Profit Taking Level: $500
Maximum Loss(es): -$250
Stop Loss: -$150