Friday, September 3rd, 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 down three days in a row as I type on Wednesday. While the Nasdaq has been up two and down one day. The charts of the indices are down below the new highs they hit last. The Nasdaq for the second week in a row is hitting new all-time-highs.
For today’s Trade of the Day, we will be studying Best Amazon, Inc. (AMZN).
Amazon.com, Inc. engages in the retail sale of consumer products and subscriptions in North America and internationally. It offers programs that enable sellers to sell their products on its websites, as well as its stores; and programs that allow authors, musicians, filmmakers, skill and app developers, and others to publish and sell content. Further, the company provides compute, storage, database, analytics, machine learning, and other services, as well as fulfillment, advertising, publishing, and digital content subscriptions. Additionally, it offers Amazon Prime, a membership program, which provides free shipping of various items; access to streaming of movies and TV episodes; and other services. The company serves consumers, sellers, developers, enterprises, and content creators.
Amazon.com, Inc. was founded in 1994 and is headquartered in Seattle, Washington.
Let’s take a look at AMZN’s weekly chart.
The ADX +DI (green line) is above the -DI and if it keeps heading up, the ADX line will starting to turn up. It looks as if it is just starting to turn. 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 rising to head up on the ADX indicator, and as 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 continue turning 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 AMZN over the course of the next few weeks.
If AMZN’s price moves above or stays above $3511, you could consider a trade. The short-term price target for AMZN is $3600 and then, perhaps, higher.
AMZN 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 $3,600. AMAZ is an equity that isn’t right for every trading account. It is an expensive stock. That said, it is a good example for learning option trading.
To buy shares of AMZN would cost approximately $3,511 per share and if it reaches its near-term target of $3,600 that would be a gain of $89.
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 3,511 by Friday a call trade can be considered.
If you buy 1 share of AMZN at $3,511, you will invest $3,511. If the stock increases in price to $2,600, you will earn a profit of $89 per share or $89 for the 1 share or about .02%.
If you bought one option contract covering 100 shares of AMZN with a Sept 24th (Sept wk 4) expiration date for the $3,600 strike and premium would be approximately $33.95 today or $3,395 per 100 share contract. If price increased to the expected $3,600 target or a gain of $89 over the next few weeks, the premium would likely increase $35 to $68.75 ($35 x 100 share contract = $3,500 Profit.) $3,500 profit on your $3,395 investment, this is an 103% 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:
Last week, we discussed BBY and an expiration of Sept 10th, a 125 strike and a premium of 1.63. Price dropped on Thursday and Friday, so this trade never really got started. Price failed before it ever got started. Its price may go back up, the pattern might continue since the ADX at this point it still rising, but it is running out of time. Time decay is escalating.
To see other past trades, visit https://www.tradewinsdaily.com/category/daily-profit-play/