Wednesday, October 13th, 2021
Happy Wonderful Wednesday!
Last week, the market climbed 3 days out of 5. And this week started with a modestly bullish climb on Monday. The Nasdaq has the highest % climb as tech stocks rose. We will continue to watch how the week plays out.
To review past equity candidates, scroll down.
For today’s Trade of the Day, we will be looking at Schlumberger Limited, symbol (SLB). Before analyzing SLB’s chart, let’s take a closer look at the stock and its services.
Schlumberger Limited supplies technology for reservoir characterization, drilling, production, and processing to the oil and gas industry worldwide. It operates in four divisions: Digital & Integration, Reservoir Performance, Well Construction, and Production Systems. Schlumberger Limited was founded in 1926 and is based in Houston, Texas.
I looked through a lot of charts over the weekend. I zeroed in on SLB on Monday because it looks ready to climb further. It is a widely traded stock with lots of volume.
On the ADX indicator below the chart, notice how the green +DI line is on top of the -DI line (red) and the ADX. The green +DI line is heading up and the ADX line appears to be starting to turn up. These are all signals of building bullish strength with the thought that price may continue to rise.
For those who want more info on ADX, I give more details in the section below, or scroll down to the trade info.
Average Directional Index (ADX) Points to Direction and Strength
ADX is an easy indicator to interpret. The +DI line (green) is bullish and when it is on top, it suggests price is going to head up. When the -DI line (red) is on top, it suggests price is going to drop.
The black line is the strength line and when it heads up, it is telling you strength is moving into the DI line that is on top and in control. When the ADX line has been heading down, the DI line on top has been weakening and is ready for a change.
When the DI lines swap places and cross up and the ADX heads up, it suggests strength is moving into the new DI direction.
ADX signal = Profit Payout
Each candle on the chart represents price movement of a week. As the +DI heads up and moves further above the black line and both rise above the red line, it suggests there is bullish strength that could continue to grow, especially once the black line starts to turn up. If price continues to rise, the ADX line (black) will continue to turn to head up to imply that strength will continue to support the trade. As long as the ADX is heading up, it means it is supporting the bullish- up direction. The opposite is true if the -DI line heads up to cross the +DI line – this suggests bearish strength and a climb in price. If the ADX line heads up while the red line -DI is on top, is it saying strength is building into the downward direction.
I am looking at its chart and possible trade on Monday, but the pattern looks as if it will continue and the +DI may continue heading up if price keeps rising. You don’t want to consider entry if the current candle doesn’t stay above 32 or if the +DI line were to turn back down.
SLB Potential Trade
Please note and remember that I am typing this on Monday, two days before you receive it and the information, I am sharing could change over those two days and is intended to share the opportunities that options offer us.
Schlumberger (SLB) last week was up, suggesting it may continue its upward bias. It appears to be ready to head higher and have the ADX turn up further, if this continues, the pattern should remain intact as price keeps rising. Notice the +DI is heading up and is above the -DI line on the chart above. We want the +DI to stay above the -DI (green line above red) to consider a trade.
Price is likely to rise further and move above 32 entry. Its first target is 37 as the +DI (green line) stays above and the ADX (black line) turns up. Its current uptrend should remain intact, and price should continue to rise, perhaps even as high as 37. We will keep an eye on SLB over the next couple weeks.
I am looking at charts on Monday, so prices are apt to change a little by Wednesday. Be sure the green +DI line continues to rise and goes further above the red -DI line and price stays above 32 before entry.
The short-term price target for SLB is $37, and then perhaps higher.
To buy shares SLB today, price would be approximately 32. It would be silly to buy shares if you expect price to drop. You’d wait until it hit a bottom and started to rise again. If price stays above 32, perhaps you could buy 10 shares for $320. If price rose to $37, that would be a profit of $5 or $50 for the 10 shares or a 16% gain.
This said, option trading offers the potential of a smaller initial investment and higher percentage gain even when price is expected to rise. Let’s take a look.
If you bought one Call option contract covering 100 shares of SLB’s stock with an November 5th expiration date (Nov wk1) for the $37 strike and premium would be approximately $.35 today or a total of $35 per contract. If price increased the expected $5 to $37 target over the next few weeks, the premium might increase approximately $3 to $3.35 per share or $300 on your 100-share contract. This is a gain of $300 on your $35 investment or a 1166% gain over a couple weeks.
Remember you can close an option trade anywhere along the line before expiration to take gains or stop a loss.
The example of making money when price drops rather than holding losing shares of stock. Big difference.
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.
If you are having any kind of trouble taking advantage of these trades, I don’t want you to miss out. I have put together programs that help traders just like you access the potential profits that options provide. I write like we are having a conversation, so the information is easy to understand and apply. Be sure to check out the programs shared in this email and we will make it easy for you to get your share.
I love to trade, and I love to teach. It is my thing.
Yours for a prosperous future,
PS-I have created this daily letter to help you see the great potential you can realize by trading options. Being able to recognize these set ups are a key first step in generating wealth with options. Once you are in a trade, there is a huge range of tools that can be used to manage the many possibilities that can present themselves. If you are interested in learning how to apply these tools and increase the potential of each trade, click here to learn more.
Review of Past Candidates:
Two weeks ago, we studied MCD and an Oct 15th expiration, a strike of 252.50 and a premium of 1.49. There wouldn’t have been a trade since the week was down 4 days out of 5. And, now the market is up again and MCD is up to 248.75, but with the decline and time decay its premium has dropped. Luckily, its dropping prices kept us out of the trade.
Last week, we looked at ROKU Put trade with an Oct 22nd (Oct wk4) expiration and a 280 strike and a premium of 7.30. There was a restriction of not entering if price didn’t drop on Wednesday below 297. On Wednesday, price rose so no put entry.