Below I reveal how the ADX works with an example that has the potential to triple. Check it out.
I teach everyday people (like me) to trade options. I do my best to write in an understandable way as if we are talking while sitting on my deck in a relaxed atmosphere.
The market was down 3 out of 5 days last week. I am typing this on Wednesday, and you won’t get this until Friday. A lot could change in a couple days.
Micron Technology Put Potential
For today’s Trade of the Day, we will be looking at Micron Technology (MU).
Before analyzing MU’s chart, let’s take a closer look at the company and its services.
Micron Technology, Inc. designs, manufactures, and sells memory and storage products worldwide. The company operates through four segments: Compute and Networking Business Unit, Mobile Business Unit, Storage Business Unit, and Embedded Business Unit. It markets its products through its direct sales force, independent sales representatives, distributors, and retailers; and web-based customer direct sales channel, as well as through channel and distribution partners. Micron Technology, Inc. was founded in 1978 and is headquartered in Boise, Idaho.
The chart of MU below is a weekly chart with an ADX indicator at the bottom. The description coming up next explains how to use the ADX.
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. When the -DI crosses over the +DI line, it gives a buy signal for Puts as the -DI line (red) 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 bearish, suggesting a downward move is gaining strength. When the +DI (green line) crosses the red and the black line points up it shows an upward trend and Calls can be considered.
Let’s look at MU’s weekly chart.
The ADX -DI (red line) has crossed the +DI and the black ADX line is curling up. As long as the -DI is above the +DI, price should fall. The past few weeks have been negative. If you want to learn more about ADX, read on or, if not, scroll down to the alert.
Potential MU Trade – Showing Strength
This signal could give a quick payout if it continues its downward move, and the strength of this pattern continues. I am typing this on Wednesday, and MU costs about $59.50. If MU’s price moves below $59 and the – DI (red line) is above the +DI, and the black line is heading up, you could consider a Put trade. The short-term price target for MU is $55 and then, perhaps, lower. With the swings in past months, I am suggesting small profit targets until a market trend starts again.
Check Out How an Option Trade Could Pay Out Big Time
Option trading offers the potential of a lower initial investment and higher percentage gain. Let’s take a look and make a comparison.
If you bought 1 stock share of MU, it would cost about $59.50. You would wait until the price hit a bottom before you bought stock.
If you bought 1 Put option covering 100 shares of MU with a July 15th expiration date for the 45 strike, the premium would be approximately $ .56 today, or $56 for 1 option. If price fell $4 over the next few weeks, the premium would likely increase $2.00, giving $200 profit on your $56 investment. This is a 357% gain.
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.
Routinely remind yourself – I believe in myself and my ability to succeed. I believe in an abundance of unlimited possibilities. The future will be awesome!
I wish you the very best,
Past potential trade update:
Last week we discussed buying WMT calls. The stock price did not reach our target entry. No trade would be taken.