NEW YORK (Real Money) -- The daisy market continues, as traders pick off petal by petal. We love the market. We love the market not. Today, we are back on the love petal. Needless to say, today there are more strong charts, with only some weakness in the metals and some profit-taking in the cybersecurity names.
I like American Express (AXP) here. This hasn't been a strong name in 2015, but finally it is showing some signs of a reversal. I see three ways to play it outside of just buying the stock and using one of two stops, $79 or $77. The price breakout is key. The bulls do need to hold the breakout today and into tomorrow -- no close under $81 is what we want to see. This will get the attention of some momentum players as the stock breaks over resistance and the upper Bollinger Band starts to expand.
The relative strength index (RSI) has been in a steady uptrend of higher lows, but we should see this break recent highs even before price. The upside target here is $85-$86. A close back under $81 keeps the stock contained in the current price channel, but a close under $79 is a very big yellow flag. Anything under $77 and the bulls might need a Buffet rescue as the stock would look like a short with a $70 target.
As far as some different approaches, I mapped out three this morning. The simple approach outside of buying the stock is to buy August $80 calls around $2.95. This is a very similar risk to buying the stock and stopping on a close under $79. The downside is you won't receive any dividends and there will be some time decay; however, from a risk-return standpoint, this is a pretty good one for a bull play over the next month. As we move into mid-July, I would look to roll the call out in time.
A second approach for the shorter term is to sell the July $79-$77 put spread for $0.30. If the stock closes under $79, then I would look to stop out, although a drop through $79 should find a hard bounce off of $77. The dollar risked here is significantly more than the reward, but the stock would need to drop about 3.5% over the next month before it would move into the negative on an intrinsic basis. Of course, a drop of a dollar or two on the stock will put this into the red if enough time has not passed to see time decay kick in.
The third approach is be a longer one keying on the $77 support level. Here I would be a seller of the August $77.5-$72.5 put spread with a target of $0.60. While this feels like a lot to risk for little to gain, AXP would have to drop about 5.5% in the next two months just for the breakeven to be met on intrinsic value. The stock is already down over 13% year to date. It's hard to fathom this level approaching 20% with very little bounce. Again, $79 would be the warning sign to pay close attention to in this case. A drop below that would certainly send this bullish put spread into the red, but would allow a trader to exit the position without a significant loss as compared to the worst-case scenario.
Editor's Note: This article was originally published at 11:30 a.m. EDT on Real Money on June 22.