This signal is showing a potential 85% gain. See how to spot it below.

For today’s Trade of the Day, we will be looking at Caterpillar, Inc. (CAT).

Let’s look at CAT’s weekly chart.

The ADX +DI (Green line) has crossed the -DI (Red line) and the black ADX line is just starting to head up.  If the +DI line is above the -DI line price should rise, if -DI is above the +DI, price should fall. The past couple weekly candles are positive. If you want to learn more about ADX, read on or, if not, scroll down to the alert.

Average Direction Index (ADX) – Strength Indicator

The Average Directional Index consists of 3 lines:  Green, Red and Black.

Green = +DI (Bullish)

Red = -DI (Bearish)

Black = ADX Strength Line

The DI line that is on top is in control.  If the ADX line is heading up, strength is supporting the DI line that is on top and in control.

Each candle on the chart represents price movement over a 5-day (week) period; therefore, it takes weeks for trades to play out.  When the -DI crosses over the +DI line, it gives a buy signal for Puts as the -DI line (red) appears as if it is in control and rising to head up on the ADX indicator, and as the ADX turns up that is even more bearish, suggesting a downward move is gaining strength.  When the +DI (green line) crosses the red and the black line points up it shows an upward trend and Calls can be considered.

CAT’s Potential Trade – Showing Strength

This signal could give a quick payout if it continues its upward move, and the strength of this pattern continues.  I am typing this on Wednesday and CAT costs about $233.   If CAT’s price moves above $233 and the +DI (green line) is above the -DI (red) with the black line heading up, you could consider a Call trade.  The short-term price target for CAT is $240.  With the swings in past months, I am suggesting small profit targets until a strong market trend starts again.

Option trading offers the potential of a lower initial investment and higher percentage gain.   Let’s look and make a comparison.

If you bought 1 share of CAT it would cost about $233. You would not buy shares if you were expecting the price to go down. You would wait until it found a bottom then buy.

If you bought 1 Call option covering 100 shares of CAT with a May 20th expiration date for the 240 strike the premium would be approximately $4.70 today or $470 for 1 option.  If price rose to $240 over the next few weeks, the premium would likely increase $4.00 giving $400 profit on your $470 investment, this is an 85% gain. 

Trading options is a win, win, win opportunity.   Options often offer a smaller overall investment, covering more shares of stock and potential for greater profits.

I like to stress when trading options, you don’t need to wait for the expiration date to close the trade. You can close anywhere along the way prior to the expiration date.  It is never a bad idea to take profit.

Trading options is like renting stocks for a fixed period. The potential to generate steady income with options is real and it can be transforming. Watch this video to learn how you can use option trading to achieve financial freedom. click here

Yours for a prosperous future,

Wendy Kirkland

Past Equity Candidates:

Three weeks ago, we talked about buying LULU April 29^th 400 strike calls.  On 4/4 price rose to the target entry and the premium was $7.90. On 4/13 you could have sold at $11.40 or a 44% profit.

Two weeks ago, we discussed buying TWTR calls. It didn’t reach the target entry so there would have been no trade.

Last week, we looked at AMAT and a May 20^th Put trade with a 105 strike, paying 2.77.  Friday was a holiday and the premium went as high as $3.25 on Monday and then Tuesday it dropped.