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 International Business Machines(MA).
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 changing directions. When that happens, it creates a great trading opportunity.
In this example we want CCI on IBM to go down to create a clear fin shape. We also want the price to go down to at least $139 before entering a trade. The first target would be $130.
To buy stock shares of IBM today, price would be approximately $139.21. You would wait until price 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 IBM with an Nov 17th expiration date for the 130 strike, premium would be approximately $1.66 today, or a total of $166 per contract. If the stock price fell the expected $9 the premium might increase approximately $4.50 to $6.16 per share on your 100-share contract. This is a 271% 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.
Past potential trade update:
Last week we discussed buying MA Puts. On 10-11 the Nov 17th 385 put was $5.20. You could have sold on 10-12 for $7.05, a 36% profit.