The health care sector has been under pressure since Feb. 1, with Illumina taking a significant hit — losing 35% of its value in less than a month. Despite beating earnings expectations, the company missed revenue estimates, which has kept the stock under pressure. Looking at ILMN’s one-year chart, the stock is sitting at rock-bottom levels. If you zoom out to a five-year chart, $100 has historically acted as a key support level, a price ILMN has rarely dropped below. These levels could be attractive for buyers looking for a discount. Technical analysis not only helps identify where a stock is likely to rebound but also signals when a reversal might be happening. While ILMN is showing signs of a potential setup, it is still in the early stages and may not be trade-ready just yet, it could start forming one within a week. The only indicator I’m focusing on right now is RSI (relative strength index): When RSI falls below 30, it signals an oversold condition, often prompting traders to watch for a potential reversal. In ILMN’s case, RSI dipped below 30 on Feb. 7, officially putting it in oversold territory. However, an oversold stock doesn’t automatically mean a bounce is imminent. Technical traders typically wait for RSI to rise back above 30 as confirmation that a trend shift is occurring. That’s exactly what we’re watching for here — waiting for RSI to reclaim 30+ to signal a stronger probability of a rebound. The trade setup: ILMN $100-$105 bull call spread To express a bullish outlook on ILMN, I’m utilizing a bull call spread strategy. This involves purchasing a $100 call option while simultaneously selling a $105 call option as a single position. If ILMN reaches or exceeds $105 by expiration, the trade will yield a 100% return on the risked capital. Setting up this trade is straightforward on any trading platform, but many options brokers, including ThinkorSwim and TastyTrade, provide a bull call spread template that automatically fills in the necessary details, making execution even easier. Here is my exact trade setup: Buy $100 call, March 21expiry Sell $105 call, March 21 expiry Cost: $250 Potential Profit: $250 Scaling up is as simple as increasing the number of contracts. For instance, buying 10 contracts would mean risking $2,500 to potentially earn $2,500 on this trade. I cover many of these setups in my book Mean Reversion Trading and provide further insights and resources on my website https://tradingextremes.com . -Nishant Pant Founder: https://tradingextremes.com Author: Mean Reversion Trading Youtube, Twitter: @TheMeanTrader DISCLOSURES: Pant has a ILMN $100-$105 call spread expiring on March 21. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
