Option Trade Of The Day: New Oriental Education & Technology Group (NYSE: EDU)
After two nights of almost nothing but bearish signals from my scans, I finally got a few bullish signals on some stocks with solid fundamentals and good looking charts.
[hana-code-insert name=’adsense-article’ /]One of those stocks was New Oriental Education & Technology Group (NYSE: EDU).The company provides private educational services under the New Oriental brand in the People’s Republic of China.
The company released earnings last week and the results were mixed and investors weren’t sure how to react.
In the end the stock went up after the earnings were released.
The biggest takeaway for me was the increase in student enrollment which was up 43% on a year over year basis.
Looking at the chart we see that the stock has been trading in a trend channel over the last nine months, and the stock just bounced off of the lower rail of the channel. We also see that the stochastic readings just made a bullish crossover and while the stock has been in the channel, such crossovers have been good indicators ahead of rallies. We also see that the 10-day RSI was at its lowest reading of the past nine months and upon further investigation, the recent low was the lowest reading since late 2016.
Buy to open the Mar18 90 strike calls on EDU at $8.50 or better. These options expire on March 16. With the stock closing at $94.41 on Friday, these options are $4.41 in the money so a little more than half of the premium is based on intrinsic value. For these options to double the price will need to get to $17.00 and that would put the stock at $107 strictly using intrinsic value. The upper rail of the channel is currently just above $105, but it is upward sloped and will reach $107 within the next week or so. In other words, the upper rail shouldn’t keep the stock from reaching $107. I would target a gain of 100% for this trade and if it should drop below the lower rail, I would look to shut the trade down.
— Rick Pendergraft
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