When I spotted this trade example, I had to send it to you. Take a look below and I’ll show you what helped me uncover it, how to get the biggest potential trade benefit, and also, I’ll update you on a previous example. Caterpillar Inc. (CAT)  created a “fin” AGAIN this week  on the CCI indicator at the bottom of its chart. Let me explain and show you how this example would work as a trade.

The Commodity Channel Index (CCI) reveals big reversals as they are about to happen. To get more info on the CCI, click here. On this chart you can see the pattern shaping up:

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This latest move is above the zero-line indicating a BEARISH move. We want CCI on CAT to go DOWN to create a fin shape. We also want the price to go DOWN to at least $365 before entering a trade. The first target would be $355 and then LOWER.

The next step is to consider what you can do with this information. Let’s take a look at how an option trade could provide a big win.

To buy stock shares of CAT today, price would be approximately $365.48. You would wait until price found a bottom before buying stock.

That said, option trading offers the potential of a smaller initial investment and higher percentage gain even when price is expected to rise or fall. Let’s take a look.

If you bought one PUT option contract covering 100 shares of CAT’s stock with a Jan 17th expiration date for the 365 strike, premium would be approximately $6.95 today, or a total of $695 per contract.  If the stock price FELL the expected $10 the premium might increase approximately $500 to $1195 per share on your 100-share contract. This is a 72% gain over a few days.

To learn more about trading options, see the other indicators I uses to spot trades, and to get these examples before they are emailed out, be sure to visit my site here.

I love to trade, and I love to teach.  It is my thing.

I wish you the very best,

Wendy

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Past potential trade update:

Last week we discussed buying MCD Puts. On 12-20 the Jan 17th 290 put was around $2.17. You could have sold on 12-23 for $4.50, a 107% profit.