3 Top Stock Trades for Santa Claus Rally Week

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With the passage of Christmas comes the entrance of the infamous Santa Clause Rally. This seven-day period has an extremely bullish track record and speaks to just how jolly traders are into year-end. The rally officially covers the last five sessions of the year and the first two of the New Year. Below, I’ll share my top stock trades to capitalize on the seasonal tailwind.

Since 1950, stocks have delivered gains 78.9% of the time over these seven days, according to LPL Research. No other seven-day combo has been positive as high a percentage as this one.

But it’s not just the calendar that should make you bullish right now; it’s also the price chart. The S&P 500 came roaring back after sinking on omicron fears. It notched a new record ahead of Christmas and was continuing higher in early-morning trading on Monday.

Here are three quality picks offering compelling entry points:

  • Advanced Micro Devices (NASDAQ:AMD)
  • Devon Energy (NYSE:DVN)
  • Ford (NYSE:F)

Let’s take a close look at each and build an options trade.

3 Top Stock Trades: Advanced Micro Devices (AMD)

Source: The thinkorswim® platform from TD Ameritrade

Buyers are swarming semiconductor stocks today. The buying bonanza has Advanced Micro Devices leaping 5% higher, making it the third-largest gainer on my watchlist. The sudden strength makes sense based on the price chart. We’re clearing a critical short-term resistance zone at $147. Doing so opens the way for a retest of the old ceiling at $164.46.

We’re also back above the 20-day moving average for the first time since falling below it at the end of November. As a tech stock, AMD takes its cue from the Nasdaq more than the S&P 500. And, wouldn’t you know it, the former is pushing through resistance as I type.

I like buying call spreads here because AMD has a history of significant upside volatility.

The Trade: Buy the January $155/$165 call vertical for $3.40.

The max loss is $3.40, and the max gain is $6.60.

Devon Energy (DVN)

Source: The thinkorswim® platform from TD Ameritrade

Energy stocks have come roaring back from last week’s omicron-driven plunge. But perhaps no component has been as impressive as Devon Energy. The Oklahoma-based exploration and production company has seen its share price balloon alongside the energy sector, but its percentage gain has put its peers to shame.

At nearly $44, DVN stock is up almost 200% for the year. Its low price tag and sky-high volatility make it a favorite vehicle among active traders. Shares are up 4.5% today and filling the gap from Dec 9. The relentless buying since last week’s pivot low is telling. If you think an upside breakout over $45.50 is looming, then it’s time to get some exposure.

I don’t mind directional plays like what we did on AMD, but I’m finding the options premium too juicy to pass up.

The Trade: Sell the February $40 put for $1.90.

Consider this a bet that the price sits above $40 at expiration. If they do, you’ll capture the entire $190 per contract.

3 Top Stock Trades: Ford (F)

Source: The thinkorswim® platform from TD Ameritrade

Ford rounds out this week’s top stock trades with a bullish breakout pattern. Today’s 3% pop is the third attempt for the automobile company to break and stay above the $20.50 resistance zone. The last two bids were quickly rejected, but more overhead supply gets absorbed with each ramp. Couple that with the bullish seasonality, and I’m willing to bet this attempt goes the distance.

The long-term and intermediate-term trends are already pointing higher. If this ramp succeeds, it will place the short-term trend back in alignment. Both naked puts and long calls or call spreads work here. Let’s go with a bull call.

The Trade: Buy the February $20/$24 bull call spread for $1.45.

You’re risking $1.45 to make $2.55 if F stock rises beyond $24 by expiration.

On the date of publication, Tyler Craig was LONG DVN and F. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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