Friday, August 20th, 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.
The Dow has been up two days and down one as I type on Wednesday. The charts of the indices are down below the new highs they hit on Monday. Yesterday, there was a sizeable drop because the of the continued outbreak of the Delta variant virus and unrest in Afghanistan.
For today’s Trade of the Day, we will be studying Lowes Companies, Inc. (LOW). Searching for symbols today continues to be a challenge. Many equities have had their indicators flip directions with the daily swings in direction.
Lowe’s Companies, Inc. operates as a home improvement retailer in the United States and internationally. The company offers a line of products for construction, maintenance, repair, remodeling, and decorating. It provides home improvement products in various categories, such as appliances, paint, hardware, millwork, lawn and garden, lighting, lumber and building materials, flooring, kitchens and bath, rough plumbing and electrical, seasonal and outdoor living, and tools. It also offers installation services through independent contractors in various product categories; extended protection plans; and in-warranty and out-of-warranty repair services. The company sells its national brand-name merchandise and private branded products to homeowners, renters, and professional customers.
As of January 29, 2021, it operated 1,974 home improvement and hardware stores. Lowe’s Companies, Inc. was founded in 1921 and is based in Mooresville, North Carolina.
Let’s take a look at LOW’s weekly chart.
The ADX +DI (green line) is above the -DI and if it keeps heading up, the ADX line should 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 ready to head up on the ADX indicator, and if 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 up as well. It looks like it is starting to turn up and I hope it will continue. 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 LOW over the course of the next few weeks.
If LOW’s price moves above $203, you could consider a trade. The short-term price target for LOW is $210 and then, perhaps, higher.
LOW 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 $210.
To buy shares of LOW would cost approximately $203 per share and if it reaches its near-term target of $210 that would be a gain of $7.
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 203 by Friday a call trade can be considered.
If you buy 3 shares of AIG at $203, you will invest $609. If the stock increases in price to $210, you will earn a profit of $7 per share or $21 for the 3 shares or about 3%.
If you bought one option contract covering 100 shares of LOW with a Sept 3rd (Sept wk 1) expiration date for the $210 strike and premium would be approximately $2.25 today or $225 per 100 share contract. If price increased to the expected $210 target or a gain of $7 over the next few weeks, the premium would likely increase $5 to $7.25 ($5 x 100 share contract = $500 Profit.) $500 profit on your $225 investment, this is an 222% 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:
Two weeks ago, we discussed TLT with a 155 strike, Aug 27th expiration and .85 premium. It started down, and then rose so that it hit 1.15. Again, it has been a tough trading period where many equities have either pulled back or have gone sideways. Lots of swings. (click here to read the article)
Last week, we looked at AIG with a Sept 3rd (Sept wk 1) expiration, a 56 strike and a premium of .57. It went as high as .90 on Monday and is at .80 as I type on Tuesday or a 44% gain. (click here to read the article)