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.
The market was down, flat, up this week as we come to the Fed Minutes this afternoon. I am typing this on Wednesday, and you won’t get this until Friday. A lot can change in a couple days.
For today’s Trade of the Day, we will be looking at iShares MSCI Brazil ETF, Symbol (EWZ).
An ETF is an Exchange Trade Fund. It is a fund that holds a variety of equities, so it isn’t based o the price move of just one equity. It is a collection of companies within one ETF equity.
Let’s look at EWZ’s weekly chart.
The ADX -DI (red line) is below the +DI and the black ADX line is heading up. As long as the -DI is below the +DI, price should rise. Green above red is an indication of bullish strength. When the +DI is bullish and the ADX turns up, it shows price is likely to climb higher. 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. On the chart, the week is a bullish candle as I type. Since the +DI crossed over the -DI line, it gives a buy signal for Calls 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. When the -DI (red line) crosses the green and the black line points up it shows a downward trend and Puts can be considered.
EWZ Potential Trade – Showing Strength
This signal could give a quick payout if it continues its upward move, and if the strength of this pattern causes the ADX line to rise. I am typing this on Wednesday and EWZ costs about $30. If EWZ’s price moves above $30 and the – DI (red line) is below the +DI (green line), you could consider a Call trade. The short-term price target for EWZ is $31 and then, perhaps, higher. With the swings in past months, I am suggesting small profit targets until a market trend starts again.
Option trading offers the potential of a lower initial investment and higher percentage gain. Let’s take a look and make a comparison.
It would be silly to buy shares of EWZ if you expect the price to go down. With options, you can profit even when the market goes down.
If you bought 1 Call option covering 100 shares of EWZ with a Feb 18th (Feb22) expiration date for the 31 strike the premium would be approximately $.96 today or $96 for 1 option. If price rises to $31 over the next few days, the premium would likely increase $1.00 giving $100 profit on your $96 investment, this is an 101% gain. A nice profit even with the market going swinging back and forth.
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,
Wendy Kirkland
Past Equity Candidates:
Friday, 2 weeks ago, we looked at buying ETSY Jan 28th 175 Put strike. The premium would have been around 14.05. As of today (Wednesday) premium is $28.10 and it was higher on Monday- about $36.50. Today it is still a gain of exactly 100%. Awesome trade that expires Friday.
Last Friday, we discussed SNAP with a Feb 18th expiration and a 30 strike with a premium of 1.26. Monday premium rose to 3.88 or 208% gain. Today as I type, it is at 3.40. Another great trade that happened quickly.
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