I just found this trade with a potential 1233% gain using one of my favorite strategies.
Happy Wonderful Wednesday!
Last week, the Dow Jones was down 2 out of 5 days. The Nasdaq was also down, and it looks like it has further to go before it hits a bottom. We will look at Puts.
Activision Blizzard Inc. On the Move
For today’s Trade of the Day, we will be looking at Activision Blizzard, Inc. symbol (ATVI).
Before analyzing ATVI’s chart, let’s take a closer look at the stock and its services.
Activision Blizzard, Inc., together with its subsidiaries, develops and publishes interactive entertainment content and services in the Americas, Europe, the Middle East, Africa, and the Asia Pacific. The company operates through three segments: Activision, Blizzard, and King. It develops and distributes content and services on video game consoles, personal computers, and mobile devices, including subscription, full-game, and in-game sales, as well as by licensing software to third-party or related-party companies that distribute Activision and Blizzard products. The company also maintains a proprietary online gaming service, Battle.net that facilitates digital distribution of content, online social connectivity, and the creation of user-generated content.
The chart of ABBV below is a weekly chart with a CCI indicator at the bottom. The description coming up next explains how to use the CCI.
Channel Commodity Index
Stockcharts.com provides a great definition of the Commodity Channel Index (CCI), which is a versatile indicator that can be used to identify a new trend or warn of extreme conditions. Originally, it was developed to identify cyclical turns in commodities, but the indicator can be successfully applied to indices, ETFs, stocks and other securities. In general, CCI measures the current price level relative to an average price level over a given period.
CCI is relatively high when prices are far above their average but is relatively low when prices are far below their average. In this manner, CCI can be used to identify overbought and oversold levels or breaks from one level to another.
A move down to the CCI -100 or the zero line can issue a Put entry signal as it moves from being bullish to bearish. A move toward -100 is a continuation of that bearishness. Up through the 100 line creates a green fin of bullishness until it drops back down through the -100 line.
A break below the zero line means it has gone from bullish to bearish and a drop below -100 suggests even more bearishness.
On the CCI indicator below the ATVI chart, notice how the line is close to the zero-line going into bearish territory. This signals bearish moves with the thought that price may move down.
ATVI’s Potential Trade
Please note and remember that I am typing this on Monday, two days before you receive it. The information I am sharing could change over those two days and is intended to share the opportunities that options offer us.
Activision Blizzard (ATVI) has been heading down for weeks. We want the CCI to drop to create a lower fin shape. We also want the price to go down to at least $76 before entering a trade. The first target would be $70.
Check Out How an Option Trade Could Pay Out Big Time
To buy stock shares of ATVI today, price would be approximately $77. You would not buy stock when you are expecting the price to go down. You would wait until it found a bottom.
This 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 ATVI’s stock with a May 20th (May 22=monthly expiration) expiration date for the $75 strike premium would be approximately $.37 today, or a total of $37 per contract. If price fell the expected $7, the premium might increase approximately $3.00 to $3.72 per share on your 100-share contract. This is a 1233% gain over a couple weeks.
For updates on previous potential trades we have discussed, scroll to the bottom of this message.
Remember you can close an option trade anywhere along the line before expiration to take gains or stop a loss.
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.
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 throughout the trade to earn and take profit or prevent a loss. Lots of fun things to learn and fine-tune.
Past potential trade update:
Two weeks ago we discussed buying ABBV 145 Puts with a March 20 th expiration date. The price did not hit the target entry until the following week.