Options Trading: Intuitive Surgical Offers Chance to Strike

It's not hard to find strong charts and technicals in this market. The rally that has been going on since April is stealth, and with it many names have been rising that were left for dead just eight months ago.

Such is the case with Intuitive Surgical (ISRG) , a popular growth name that tends to move wildly with news about the company or industry. The lows we see in the chart from back in April seem pretty firm, the stock tested those levels (call it $425) on a few occasions in September and October.  

Volume during that test was moderate after a strong run up then down during the summer period. A huge gap up following strong earnings in October has vaulted ISRG to new highs, and the channel we have drawn is uber bullish. The indicators are mildly positive as the stock enters a "quieter" period, without much news to drive the stock until earnings hit in January.

A bullish golden cross was made recently (arrow).  

We like an options play here, understanding the premiums can be very expensive. With continued momentum the stock can make a run past $600 but will likely only be helped further by a strong earnings report (which many expect to see). 

The February monthly option captures the next earnings period, a strike slightly out of the money offers a nice opportunity for a good return. 

If we target the $650 area (only 14% higher than current levels), we could see adding the $590 call at $32, which is about 5.5% of the current price of Intuitive Surgical. The expected move on the next earnings report is about 10.5%, so we are not priced out of a move.

This strike gives us plenty of time, the strike won't be very sensitive yet to short-term stock movements and is close enough to the money that if we need to cut bait quickly the losses should not be horrible (save for any bad news).  

Manage the risk, only use discretionary capital and always size properly.