This Trade Targets a 100% Return by May

Option Trade of the Day: BorgWarner, Inc. (NYSE: BWA)

Once again we saw stocks open lower but rally back yesterday. Yesterday’s lower open came courtesy of the CPI report for January coming out with inflation running higher than anticipated. Since the January employment report came out and showed a significant jump in hourly earnings, the market has been on edge with fears of inflation.

[hana-code-insert name=’adsense-article’ /]Despite the CPI numbers yesterday, stocks rallied from a sharp drop in the morning and the indices closed significantly higher on the day.

The bullish signals continued to outnumber the bearish signals and therefore I have another bullish trade idea for you today.

Today’s idea is BorgWarner, Inc. (NYSE: BWA).

The auto parts manufacturer based in Auburn Hills, Michigan has seen good earnings and sales growth in recent years and I look for that to continue.

BWA appeared on the bullish list thanks to the daily oscillators and their readings, but it was the weekly chart that caught my attention. We see that the stock has been in upwardly-sloped trend channel over the last year and a half and it touched the lower rail of the channel last week and has since bounced.

Buy to open the April18 50 strike calls on BWA at $5.00 or better. These options expire on April 20. I look for BWA to bounce back up to the top of its channel in the next month and a half and that would mean it was flirting with the $60 mark and would make this option double in value based on the intrinsic value. We see that the last time the stock flirted with the lower rail was last August and it proceeded to jump from the $44 area all the way up to $52.50 a mere six weeks later. I look for a similar move this time.

— Rick Pendergraft

OPTIONS DISCLAIMER: Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options. Copies of this document may be obtained from your broker, from any exchange on which options are traded or by contacting The Options Clearing Corporation,

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Rick Pendergraft, Trades Of The Day

Rick Pendergraft has been studying, trading, analyzing and writing about the investment markets for over 30 years. He has worked for some of the largest financial publishers in the world and he has been quoted in the Wall Street Journal, USA Today, the New York Times and the Washington Post. In addition, he has been interviewed on Bloomberg, CNBC and Fox Business News. Rick's analysis process includes fundamental, sentiment and technical analysis.