Friday, October 15th, 2021
Happy Fabulous Friday!
I teach everyday people (like me) to trade options. I do my best to write in an understandable way as if we are talking over the kitchen table.
Volatility continues. The Dow has dropped 3 days as I type on Wednesday. The Nasdaq is up today after being down modestly Monday and Tuesday. The end result is price remains flat on the weekly charts.
For today’s Trade of the Day, we will be studying Ulta Beauty, Inc. (ULTA) which is a Nasdaq listed company.
Ulta Beauty, Inc. operates as a retailer of beauty products in the United States. The company’s stores offer cosmetics, fragrances, skincare and haircare products, bath and body products, and salon styling tools; professional hair products; salon services, including hair, skin, makeup, and brow services; and others, including nail products and accessories.
As of January 30, 2021, the company operated 1,264 retail stores across 50 states. Ulta Beauty, Inc. was founded in 1990 and is based in Bolingbrook, Illinois.
Let’s take a look at ULTA’s weekly chart.
The ADX +DI (green line) is above the -DI and if it keeps heading up, the ADX line will continue to turn up. As long as the +DI is above the -DI, price should rise. Green above red is an indication of strength. When the +DI is bullish and the ADX turns up, it shows strength. 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.
Check Out the Trade Alert Signal
Each candle on the chart represents price movement over a 5-day (week) period; therefore, it takes weeks for trades to play out. On the chart, the week is a bullish candle as I type. When the +DI crosses over the -DI line, it gives a buy signal (as the +DI line (green) 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 bullish, suggesting an upward move is gaining strength. I’d like to see the green line to continue its upward bias and then the black line to turn straight up and head up as well. All are bullish signs of strength. When the +DI crosses the ADX (black line) and when it rises, it shows a new burst of strength coming into the equity.
The Black ADX line is a strength line and if it flips up and continues to head up, it shows strength, and we’ll know strength will continue to flow into this equity. We will keep an eye on ULTA over the course of the next few weeks.
If ULTA’s price moves above or stays above $390, you could consider a trade. The short-term price target for ULTA is $400 and then, perhaps, higher. With the swings and recent volatility, I am suggesting small profit targets until a market trend starts again.
ULTA is a pricier equity and trading it will not be appropriate for every trading account, but it is still a great equity to study to learn about the benefits of option trading.
ULTA Potential Trade – Showing Strength
This signal could give a quick payout if it continues its upward move, and the strength of this pattern continues. It looks as if it could push above $400. I am typing on Wednesday and ULTA started the day at $390+ and is heading up, if it continues above 390 showing it is moving up, a trade could be considered.
To buy shares of ULTA would cost approximately $390 per share and if it reaches its near-term target of $400 that would be a gain of $10 or 2.5%.
This is a great example of the benefits of trading options. Let’s discuss this as a study case.
Option trading offers the potential of a lower initial investment and higher percentage gain. Let’s take a look and make a comparison.
The plus DI (green line) is above the -DI and if it stays above the -DI (red) line and rises above $390 by Friday a call trade can be considered.
If you buy 2 shares at $390, you will invest $780. If the stock increases in price to $400, you will earn a profit of $20 per share or $40 for the 2 shares or about 2.5%.
If you bought one option contract covering 100 shares of ULTA with an Nov 5th (Nov wk1) expiration date for the $400 strike and premium would be approximately $9.80 today or $980 per 100 share contract. If price increased to the expected $400 target or a gain of $10 over the next few weeks, the premium would likely increase $8 to $ ($8 x 100 share contract = $800 Profit.) $800 profit on your $980 investment, this is an 82% gain. Nice! Terrific trade if it hits it target!
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 of time. 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,
Past Equity Candidates:
Three weeks ago, we discussed NFLX with an October 22nd expiration date (Oct wk 4) and a 620 strike for a premium of $16.20. Price rose to $646.84 and premium when as high as $40 or a gain of $23.80 or 147% gain. $2,380 profit on $1,620 investment. Awesome!
Last week, we took a break to see how the market was going to work out of the volatility.