Shares of Red Hat Inc (NYSE:RHT) are up 0.8% to trade at $152.20, after BMO raised its price target on the software stock to $172 from $142. This was the fifth price-target hike issued to RHT stock this week, and following this flurry of brokerage attention, Red Hat is slated to report fourth-quarter earnings after the close on Monday.

Historically speaking, RHT stock has had a positive earnings reaction in three of the last four quarters, including a 5.2% bump last March. Over the last eight quarters, the equity has averaged a 6% move the day after earnings, regardless of direction. This time around, the options market is pricing in a larger-than-usual 8.4% one-day move, per Trade-Alert. A move of similar magnitude to the upside would put RHT stock at around the $165 level, a new record high, based on current trading levels. 

Looking closer at the charts, RHT stock has added 26% in 2018 and scored an all-time peak of $157.22 on March 7. Since then, the shares have consolidated atop their 20-day moving average, a trendline that has served as support for most of the past 12 months.

Despite the stock's long-term technical strength, there is still a bearish bias on Wall Street. For instance, nearly 35% of covering analysts still recommend either a "hold" or "sell" rating. Furthermore, RHT's average 12-month price target of $142.93 sits at a discount to the stock's current perch. Another positive earnings reaction could prompt a round of upgrades and/or more price-target hikes.

Short sellers have been piling on the stock, too, with short interest up more than 76% since early November. Not only is it impressive that the equity has rallied in the face of such intense selling pressure, but, at RHT's average daily trading volume, it would take it would take nearly four days to buy back those bearish bets.

Near-term options traders are more put-heavy than usual as well. This is according to Red Hat's Schaeffer's put/call open interest ratio (SOIR) of 1.12 that ranks in the 92nd percentile of its annual range. This indicates that there is heavier-than-normal amount of short-term puts open relative to calls. A capitulation from some of the weaker bearish hands could create tailwinds for RHT stock.

We have long trumpeted the advantages of speculating on stocks with options, as these vehicles provide leverage and flexibility. The long call spread, or bull call spread, is a great example of both of these traits. The spread involves buying to open a call, and simultaneously selling to open a higher-strike call in the same series. By selling that call, you can reduce your cost of entry -- which represents your maximum risk -- as well as your breakeven on the bullish trade. However, you may have to sacrifice some profits in the event of a bigger-than-expected rally.

Let's look at how it works. Let's say Stock XYZ is trading at $138, and our theoretical trader expects it to go higher in the short term. However, earnings are approaching, and ramped-up volatility expectations translate into higher option premiums. Instead of simply buying a call outright, our trader decides to initiate a long call spread.

The April 140 call has an ask price of $3.30. Since each option represents 100 shares, this trade costs $330. To make it a bull call spread, he simultaneously sells to open the April 145 call, which is bid at $1, or $100. This brings the net debit on the trade to $2.30, or $230.

To profit on the spread, the trader needs XYZ to move above $142.30 (bought call strike plus premium paid) before April options expire. Had he simply bought the 140-strike call, his breakeven would be $143.30. Meanwhile, should XYZ shares move lower, the most the spread will lose is $230, compared to $330 for the lone call buy.

The downside, however, is that the bull call spread's profit is capped thanks to the sold 145-strike call. Should XYZ skyrocket to $150 before expiration, the spread's profit would max out at $2.70, or $270 (difference between strikes minus net debit). A buyer of just the 140-strike call, on the other hand, would be holding an option with 10 points of just intrinsic value, or roughly $1,000. Minus the $330 paid for the call, that's a profit of $670.

As you can see, a long call spread is an intriguing bullish strategy if you have an idea of where a stock may lose steam. Plus, its relatively low cost of entry -- and, thus, maximum risk -- is incredibly appealing when options premiums are pricey. As long as you're comfortable sacrificing the theoretically unlimited profit potential of a "vanilla" call purchase, a long call spread may be the move to make.

It was a rough week for the U.S. stock market, as worries about a trade war with China and a sharp decline in tech heavyweights -- namely Facebook (FB) -- pressured the major benchmarks to big weekly losses. In fact, the Dow Jones Industrial Average (DJI), S&P 500 Index (SPX), and Nasdaq Composite (IXIC) at the time of this writing are set for their largest weekly declines in over a month. Of course, investors also digested an interest rate hike from the Fed, with the central bank giving the economy a vote of confidence in the process.

Trade War Fears Mount

While talk of a trade war has been hanging over Wall Street for weeks, the situation escalated after President Donald Trump announced $60 billion in tariffs on China Thursday. This news prompted a more than 700-point decline in the Dow.

Just a day later, China responded with trade measures of its own. In the meantime, traders punished U.S.-listed Chinese firms, including Alibaba stock, and put volume surged on the e-commerce giant as a result.

Facebook Drama Headlines Tech Sell-Off

But early in the trading week the focus was almost entirely on Facebook (FB). The social media stock experienced its worst day in years in light of the drama surrounding Cambridge Analytica and its misuse of the company's user data. Options traders took advantage of the opportunity, with put volume setting a record high.

Facebook's struggles spread throughout the entire tech sector, and that obviously includes fellow FAANG stocks and social media rivals, like Twitter and Snapchat parent Snap. Oracle (ORCL) suffered major post-earnings losses, as did Micron (MU), and OLED stock struggled, too, following surprising Apple (AAPL) buzz. Yet all those moves pale in comparison to this software stock that lost half its value.

It wasn't all negative headlines in the tech space, however. Salesforce.com (CRM) made waves again with its big M&A announcement, and BlackBerry (BB) grabbed the spotlight with a blue-chip partnership. Elsewhere, Samsung news gave Roku (ROKU) a lift.

Healthcare Names to Watch

We again covered a number of noteworthy moves in the healthcare sector. Few names impressed more than Arcadia Biosciences (RKDA), though Omeros (OMER) came close. Arena Pharmaceuticals (ARNA) has also continued to be a winner in the space.

bluebird bio (BLUE) used to spend most its time in the winners' circle, but recently found itself on the end of a big-time losing streak. It was Proteostasis Therapeutics (PTI) that landed in the cross hairs of short sellers, though. Some of the higher profile names took their bumps, too, including Pfizer (PFE) and AbbVie (ABBV). Going forward, underperforming Celgene (CELG) may face more headwinds.

Other Winners This Week

Looking at some of the other stocks that were in focus this week, analysts kept raising the bar for Nike (NKE), and the stock rewarded bulls with an impressive earnings win on Friday. Analysts are also fans of Booking Holdings (BKNG), Ralph Lauren (RL), and NetApp (NTAP) -- which has also rewarded options traders. Pandora's (P) M&A efforts earned it a major price-target hike, and another brokerage firm is expecting new highs from this insurance giant.

Shortened Week Ahead

While markets will be closed next Friday for Good Friday, there's plenty on the economic calendar to pay attention to, including the final reading on fourth-quarter GDP. We also compiled a list of 50 stocks to trade next week, including this FAANG stock to avoid.

The shares of Cisco Systems, Inc. (NASDAQ:CSCO) are muscling higher today, after pulling back with the broader stock market earlier this week. Bolstering the blue chip is a bullish analyst note, with Goldman Sachs adding CSCO stock to its conviction list, and hiking its price target to $54 -- a premium of 24% to the stock's current price. "We expect Cisco to deliver significant returns to shareholders from the recently enacted tax laws," he wrote. At last check, CSCO shares were 1.2% higher at $43.59.

Prior to this week's tech sell-off, Cisco stock was flirting with 17-year highs. The equity peaked at $46.16 on March 13, and is now testing support atop its 10-week moving average. This trendline has ushered the Dow stock higher since mid-2017, helping CSCO soar 36% in the past nine months.

Today, however, options traders aren't buying the bounce. Cisco Systems puts are crossing the tape at 1.6 times the average intraday pace, with 20,000 already traded. Most active is the weekly 4/6 37.50-strike put, which has seen apparent buy-to-open activity. By purchasing the puts to open, the buyers expect CSCO shares to retreat beneath $37.50 -- an area that acted as chart support during the early February correction -- before the close on Friday, April 6, when the options expire.

On the other hand, the out-of-the-money put buyers could be Cisco shareholders seeking an options hedge. By purchasing protective puts on the high-flying stock, the traders can lock in an acceptable price at which to sell their shares, should the equity take a turn for the worse.

Wynn Resorts, Limited (NASDAQ:WYNN) is up 1% today to trade at $177.34, on news the casino's founder and former CEO Steve Wynn has sold his entire stake in the company. Plus, Macau's Galaxy Entertainment revealed a 5% stake in WYNN -- a move that had Jefferies reiterating its "buy" rating, while Union Gaming upgraded the stock to "buy" from "hold," and raised its price target to $205 from $175, saying the recent restructuring could open the M&A door. Analysts aren't the only ones chiming in, with options volume accelerated this afternoon.

At last check, more than 27,800 calls and 9,650 puts were on the tape -- 1.3 times what's typically seen at this point in the day. Most of the action has centered at the April 185 and 195 calls, where it looks like one trader may have initiated a call ratio spread by buying 5,000 of the former and selling 10,000 of the latter for an initial net debit of $0.89 per spread.

If this is the case, WYNN will ideally settle right at $195 at the close on Friday, April 20 -- when front-month options expire, and the day of the casino's annual shareholders meeting -- allowing the speculator to pocket the maximum potential profit of $9.11 per spread (difference between the two strikes, less the net debit). And while risk to the downside is limited to the initial cash outlay, a sharp rally could result in theoretically unlimited losses, since one of the sold calls is naked.

Looking at the charts, WYNN stock hasn't traded north of $195 since Jan. 26 -- the day sexual misconduct allegations against Steve Wynn were first reported in The Wall Street Journal. The shares went on to dip below long-term support atop their 80-day moving average, sinking to a near-term low of $156.54 on March 2, but have since climbed back above this rising trendline. And while the equity continues to hold north of here, it's been trading in a channel of lower highs since gapping to the $192 neighborhood earlier this month.

The Dow is below breakeven today, as it heads for another weekly loss. Three stocks making notable moves are data storage issue Dropbox, Inc. (NASDAQ:DBX), financial name Bank of America Corp (NYSE:BAC), and tobacco concern Alliance One International, Inc. (NYSE:AOI). Let's take a closer look at what's moving shares of DBX, BAC, and AOI.

DBX Stock Explodes In Trading Debut

After seeing its initial public offering (IPO) priced at $21, Dropbox stock opened for trading today at $29, and was last seen hovering just above this mark at $29.26 -- giving the shares a one-day surge of 39.3% so far. Earlier they traded as high as $31.60. The IPO marks the biggest from the tech sector since Snapchat parent Snap went public this time last year.

BAC Set For Historic Weekly Drop

Bank of America stock is under pressure following the news of the big bank's $42 million settlement with New York regulators for an alleged "masking" scheme. BAC shares have slipped 3.4% to trade at $29.52, putting them on pace for a second straight close below the 80-day moving average, after not falling below the trendline since September. In fact, the equity's 8.3% week-to-date slide would be its largest since February 2016.

However, options traders are betting on a quick rebound. Trade-Alert notes substantial buy-to-open activity at the April 32 and 33 calls today. This is just business as usual, though, as call buying has roughly tripled put buying on BAC during the past two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX).

Marijuana Buzz Gives AOI Shares a Lift

Shares of Alliance One International are higher on news Canada's "Cannabis Act" has passed a second reading in the Senate. AOI stock was last seen up 4.9% at $26.28, as it continues its recent outperformance. Specifically, the equity has exploded from its perch near $13 from back on Feb. 8, just before the company announced it was moving into the cannabis business. The shares peaked at $30.70 back on March 15, and yesterday found familiar support above the 20-day moving average.

Shares of Nike Inc (NYSE:NKE) are soaring, after the athletic apparel concern reported fiscal third-quarter adjusted earnings and revenue beats last night, and in response, received a fresh round of bullish brokerage notes. The most notable price-target hike came from Deutsche Bank to $76 from $75 -- an 18% premium to last night's close, and uncharted territory for the Dow stock. At last check, NKE was up 3.6% at $66.71 in early trading.

Nike stock has already had an impressive run up the charts -- gaining 32% since skimming the round $50 mark in mid-October, and more recently touching a fresh record high of $70.25 on Feb. 27. Plus, yesterday's broad market-related dip was quickly contained by NKE's rising 80-day moving average. 

Nevertheless, put buyers have been swarming the retail stock. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows NKE with a 10-day put/call volume ratio of 1.52, ranking in the 89th percentile of it annual range. This indicates that puts have been purchased over calls at a much faster-than-usual clip during the past two weeks.

Echoing this, NKE stock's Schaeffer's put/call open interest ratio (SOIR) of 1.30 ranks in the 79th percentile of its annual range, showing a heavier-than-normal put-skew among options expiring within three months. While some of this activity may be a result of shareholders hedging against any unexpected downside, a capitulation from some of the weaker bearish hands could translate into tailwinds for the shares.

NetApp Inc. (NASDAQ:NTAP) stock is higher today, up 1.7% at $63.21, after Piper Jaffray raised its price target to $72 from $60 -- territory not charted in 17 years. After meeting with management, the analyst in coverage believes the software firm is well-positioned to take advantage of next-generation technologies, and upped his revenue and gross margin estimates. 

Although currently on track for second straight weekly loss, it's been an excellent run lately for NetApp stock. The equity has added more than 50% year-over-year and hit a 17-year high of $65.58 on March 14. The shares have relied on support from their 80-day moving average, which has contained the last two pullbacks. 

Despite the stock's long term technical strength, analysts have been slow to come aboard. Of the 24 brokerages covering NTAP, 12 still rate the shares a "hold" or "strong sell." Furthermore, the stock's average 12-month price target of $63.82 is within pennies of the stock's current perch. This implies there is ample room for upgrades and more price-target hikes for the software name.

Near-term options traders, however, are more put-heavy than usual. This is according to NetApp's Schaeffer's put/call open interest ratio (SOIR) of 0.84 that ranks in the 93rd percentile of its annual range. This indicates that while call open interest still outweighs put open interest on an absolute basis, looking at options expiring within three months, there is still a heavier-than-normal amount of short-term puts open relative to calls.

Regardless of whether it's calls or puts, NetApp stock has consistently rewarded premium buyers over the past year, based on its elevated Schaeffer's Volatility Scorecard (SVS) reading of 87 (out of 100). In other words, NTAP has tended to make outsized moves in the last 12 months, relative to what the options market has priced in.

Blue chip pharma name Pfizer Inc. (NYSE:PFE) is trading lower today following news the company's anti-smoking product, Chantix, didn't meet its goals in a late-stage study. The study was aimed at adolescent smokers aged 12 through 17. As such, PFE shares are down 0.7% at $35.35, sandwiched between their year-to-date breakeven mark of $36.22 and the all-important 200-day moving average, last seen near $35.16.

This price action is good news for a number of recent options traders, though. For instance, the April 38 put saw the largest increase in open interest during the past 10 days, thanks to big buy-to-open activity back on March 15. Elsewhere, traders have been selling to open overhead calls, including the April 37 and 38 strikes, as well as the May 37 call.

Peak open interest, meanwhile, resides at the June 37 call, which is home to 35,666 contracts -- most of which were, yes, sold to open. Overall, options activity has actually been muted on the equity, with total open interest sitting just three percentage points from a 12-month low.

Analysts have so far been silent following the Chantix news, but coming into today this group was very bullish on PFE. Eight of the 11 brokerage firms tracking the drugmaker had "buy" or "strong buy" ratings in place, and the average 12-month price target of $40.26 prices in upside of nearly 14% from current levels.

Shares of Kroger Co (NYSE:KR) and Target Corporation (NYSE:TGT) popped at the open after a Fast Company report suggested the two retailers were in merger talks -- following last year's purchase of Whole Foods by Amazon (AMZN). Both KR and TGT have since pared a portion of their earlier gains after CNBC nixed the takeover chatter, but both stocks continue to trade near key technical levels.

Kroger Options Traders Eye a Strong Finish to Today's Session

Kroger stock was up nearly 3.7% earlier, but was last seen at trading 1.5% higher at $23.73. The shares have shed 24.5% since their late-January annual high of $31.45, and an earnings-induced bear gap from earlier this month sent Kroger plummeting below its 200-day moving average. This descending trendline is currently perched just above at $24.38.

Options traders have kept the faith toward the grocer, though. The weekly 3/23 24-strike call has seen the biggest increase in open interest over the past 10 days, with 10,590 contracts initiated. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) confirms mostly buy-to-open activity here, meaning speculators expect Kroger stock to settle north of $24 at tonight's close, when the weekly series expires.

Analysts Remain Skeptical of Target Stock

Target stock jumped 1.9% out of the gate, but was more recently seen up 0.4% to trade at $69.17. The shares came within a chip-shot of taking out their Jan. 23 annual high of $78.70 on Feb. 27 -- topping out at $78.43 -- but have since shed 11.8%. The pullback appears to be finding a foothold near TGT's 80-day moving average, which worked as resistance back in November.

Analysts remain skeptical of the retail stock, though. Of the 17 brokerages covering the shares, 13 maintain a "hold" or "strong sell" rating, while the average 12-month price target of $76.48 stands at a tepid 10.6% premium to TGT's current price.

Domain name giant Verisign, Inc. (NASDAQ:VRSN) looks set to pop next week, if history is any indication. According to Schaeffer's Senior Quantitative Analyst Rocky White, VRSN is one of only three S&P 500 Index (SPX) stocks that boasts a 100% win rate during the holiday-shortened Good Friday week, looking at returns from the past decade.

What's more, of those three standout stocks, VRSN sports the highest average return for the period of 2.2%. And notably, Verisign is the only tech-sector name on the list of top 25 S&P stocks for next week.

Heading into this year's pre-Easter week trading, VRSN already looks strong on the charts. The stock is fresh off its March 16 multi-year high of $127.24, and just pulled back to short-term support at its 10-day moving average. Key support from this trendline -- along with its 40-day, 80-day, and 160-day counterparts -- has guided VRSN to a gain of about 20% over the last six months.

A burst of short-covering support could help Verisign stock extend its perfect seasonal record next week. A steep 18.4% of the stock's float is dedicated to short interest, representing 11.7 times VRSN's average daily trading volume. This leaves the equity well-positioned to capitalize on an influx of buying pressure as these shorts throw in the towel.

Overdue bullish brokerage notes could also propel VRSN higher. Not one of the four analysts tracking the stock calls it a "buy," and the average 12-month price target of $113.25 stands well below the equity's current price.

Speculative players looking to bet on another short-term bounce from VRSN will want to keep their time frames tight, as the company's first-quarter earnings report is due out just after April options expiration. As a result, front-month VRSN options are pricing in implied volatility of around 26%, compared to nearly 28% out in the May series.

Subscribers to Schaeffer's Event Trader service recently scored a 167% profit with the NetApp Inc. (NASDAQ:NTAP) March 55 call. We're going to take a look back to see why we were initially bullish on NTAP when we recommended the call, and how the options trade unfolded.

We entered our bullish NTAP position on Monday, Feb. 12, two days prior to the company's third quarter earnings report. At the time of the recommendation, the software concern was nestled above its year-to-date breakeven mark of $55.32, an area that contained stock's last two pullbacks. This area also coincided with the shares' 80-day moving average, adding an extra layer of support. 

Despite the stock's technical strength, bullish analysts were outnumbered. Of the 24 brokerages that were covering NTAP, 15 rated the shares a "strong sell" or "hold." This indicated that there was ample room for upgrades that could push the stock higher in the short-term. 

Near-term options traders were becoming less call-focused going into earnings, too, based on NTAP's rising Schaeffer's put/call open interest ratio (SOIR). Furthermore, a large chunk of this put open interest was at the 55 and 60 strikes, adding yet another potential layer of support for the software stock.

Immediately after we entered the trade, two more analysts joined the bullish fray, nudging the stock higher. While NetApp stock initially dropped after earnings, it quickly bounced back to the technical levels we identified. The equity continued to climb in the weeks after we entered the call trade, culminating in a 17-year high of $65.58 on March 14. 

We closed half of the NetApp call position back on March. 12, exactly one month after entry. We subsequently closed the final half on March 16, for a profit of 167%, allowing options traders to more than double their money.