When you are looking at a potential trade, picking a target of where you think the stock is likely to move to is a key element. This provides you with an exit target that will reduce your risk of exiting too early. In options trades, it becomes even more important as it will allow you to look for a bargain option based on that target strike price.
There are a vast number of ways people use to find a price target and the right one is the one that works for you. What we will go over here is what has worked for us and, more specifically, what has worked for us with a setup that has been performing well in this current market. You can read about that set up here.
Take a look at how support and resistance can help us spot a likely price target:
The arrow at the bottom of the chart shows us the MACD crossover that caught our attention and let us know a potential trade was setting up. When we look at the recent price action we can see that the most recent previous high is around 115 (the green line) and the next recent high was just above 120.
With that information we can start looking at options around those targets. Since the 155 target is pretty close to the current price we would expect the premiums for those options to be more costly. We can look at an expiration date a month or even two months out and see what the premium difference was between the 115 and 120 strike prices. For expirations one month out from this chart, the 115 calls were priced about $3.50 and the 120 calls were at about $2.40. Since the 120 target is very defendable, that makes it a solid choice.
By looking at the recent peaks in the price of this stock, we can see where traders felt like it wasn’t going to go high and either stopped buying or started selling and the price fell back. It will take some type of event for people holding this stock to change there targets so those are calculated targets.
As we said earlier there are many ways to identify price targets so be sure to dig in a look at some others. Meanwhile, keep an eye on this stock to see how it plays out.
Keep learning and trade wisely,
Market Wealth Daily