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 JD.com, Inc. (JD).

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.

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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 changing directions. When that happens, it creates a great trading opportunity.

In this example we want CCI on JD to go up to create a clear fin shape. We also want the price to go up to at least $38 before entering a trade. The first target would be $40.

To buy stock shares of JD today, price would be approximately $37.67. If price went to $40 you would make about $2.33 per share.

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 Call option contract covering 100 shares of JD’s stock with a June 16th expiration date for the 40 strike, premium would be approximately $1.17 today, or a total of $117 per contract.  If the stock price rose the expected $2 the premium might increase approximately $1 to $2.17 per share on your 100-share contract. This is a 85% 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.


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Past potential trade update:

Last week we discussed buying BMY calls. On 5-10 the June 16th 65 call was $3.95. The premium on 5-11 was $5.05, a 28% profit.