For today’s Trade of the Day, we will be looking at Qualcomm Inc. (QCOM).
Before analyzing QCOM’s chart, let’s take a closer look at the company and its services.
QUALCOMM Incorporated engages in the development and commercialization of foundational technologies for the wireless industry worldwide. The company operates through three segments: Qualcomm CDMA Technologies (QCT); Qualcomm Technology Licensing (QTL); and Qualcomm Strategic Initiatives (QSI).
The chart of HES 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 QCOM’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.
Potential QCOM Trade
This signal could give a quick payout if it continues the downward move, and the strength of this pattern continues. I am typing this on Wednesday, and QCOM costs about $128.60. If QCOM’s price moves to $128 and the -DI (red line) stays above the +DI, and the black line is heading up, you could consider a Put trade. The short-term price target for QCOM is $120 and then, perhaps, lower.
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.
To buy shares of QCOM stock you would pay about $128.60. You would wait until the price reached a bottom before buying stock.
If you bought 1 Put option covering 100 shares of QCOM with an Oct 21st expiration date for the 120 strike, the premium would be approximately $3.70 today, or $370 for 1 option. If price fell $8 over the next few weeks, the premium would likely increase $4.00, giving $400 profit on your $370 investment. This is a 108% 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 ABBV Puts but it did not reach our target entry price.