Take a look at this example of a trade I just spotted. Finding great bargains that are overbought or oversold doesn’t have to be as hard as it may seem. Let me show you what I noticed on a chart of Nike Inc. (NKE).
Be sure to check out the update on a previous trade at the bottom of this message.
On the chart below, I included the Channel Commodity Index indicator which I use to help me spot powerful reversals that are setting up. If you want more information on the CCI click here.
On the CCI at the bottom of the chart you’ll see highlighted areas that look like fins. These tell us there is a high likelihood that the price is heading up.
In this example we want CCI on NKE to go down to create a clear fin shape. We also want the price to go down to at least $101 before entering a trade. The first target would be $95.
To buy stock shares of NKE today, price would be approximately $101.60. 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 NKE with a Feb 16th expiration date for the 101 strike, premium would be approximately $2.23 today, or a total of $223 per contract. If the stock price fell the expected $6 the premium might increase approximately $3.00 to $5.23 per share on your 100-share contract. This is a 135% gain over a couple weeks.
Options can offer a win, win, win trade opportunity. They often offer a smaller overall investment, covering more shares of stock, and potentially offer greater profits.
I love to trade, and I love to teach. It is my thing.
Wendy
Past potential trade update:
Last week we discussed buying ETSY Puts. On 1-18 the Feb 16th 70 put was $2.74. You could have sold on 1-19 for $3.30, an 20% profit.
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