Happy Wonderful Wednesday!
Last week the S&P was down 4 out of 5 days. When the market goes into a downtrend you can buy Puts instead of Calls. Today we are going to look at a Put.
To review past equity candidates, scroll down.
For today’s Trade of the Day, we will be looking at Boeing Company, symbol (BA). Using the technique outlined below we have spotted a potential 234% gain. Keep reading to see how to set it up.
Before analyzing BA’s chart, let’s take a closer look at the stock and its services.
The Boeing Company, together with its subsidiaries, designs, develops, manufactures, sales, services, and supports commercial jetliners, military aircraft, satellites, missile defense, human space flight and launch systems, and services worldwide. The company operates through four segments: Commercial Airplanes; Defense, Space & Security; Global Services; and Boeing Capital. The company was incorporated in 1916 and is based in Chicago, Illinois.
On the ADX indicator below the chart, notice how the red -DI line is on top of the +DI line (green) and the ADX. The black line of the ADX line has turned up. These are all signals of building bearish strength with the thought that price may move down.
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. If 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 is in a downtrend and will continue. The -DI may continue heading up if price keeps falling. You don’t want to consider entry if the current candle doesn’t move below 168 or if the -DI line were to turn down and drop below the ADX.
If you are interested in learning more about the ADX strength line, I’d like to suggest you consider getting Inevitable Trend Moves. This book covers in detail how to trade the ADX to jump in during a confirmed strength stage that is as clear as looking at a picture with arrows pointing out direction.
BA’s 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.
Boeing Company (BA) has been heading down for a few weeks, suggesting that the downtrend is strong. It appears to be ready to head lower and the -DI has crossed up, if this continues, the pattern should remain intact as price keeps falling. Notice the -DI is above the +DI line on the chart above. We want the -DI to stay above the +DI (red line above green) to consider a Put trade. Then we’ll hope the ADX continues its upward strength.
Price is likely to fall further and move past the 168 entry. Its first target is 160 as the -DI (red line) stays above and the ADX (black line) continues to head up. Its current downtrend should remain intact, and price should continue to fall, perhaps even go lower. We will keep an eye on BA over the next couple weeks.
To buy shares BA today, price would be approximately $169. It would be silly to buy shares if you expect price to drop as we do. You’d wait until it hit a bottom and started to rise again.
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 BA’s stock with a April 14th expiration date for the $160 strike premium would be approximately $1.92 today or a total of $192 per contract. If price fell the expected $9, the premium might increase approximately $4.50 to $6.42 per share on your 100-share contract. This is a gain of $450 on your $192 investment or a 234% 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.
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:
Last week we discussed buying C March 18th 55 Puts. On 3/2 the premium was .81. You could have sold on 3/7 for $1.80 or 122%.
Two weeks ago we talked about buying MCD March 18th 240 Puts. On 2/23 the premium was $3.45. On 3/7 you could have sold for $15.85 or a 359% profit.
Three weeks ago we discussed buying CAT March 18th Puts with the 195 strike. The premium would have been $3.40 on 2/16. On 2/18 the premium is $7.85 which is 131% profit. On 2/24 you could have sold for $11.95 which is 351%. We will continue to watch this trade to see if it goes up any further.