I just spotted a potential 229% win with one of my favorite indicators. Let me explain.
Last week, the Dow Jones was up 3 out of 5 days. The Nasdaq was down 3 out of 5 days and looks like it has further to go before it has a bottom. We will look at Puts.
To review past equity candidates, scroll down.
For today’s Trade of the Day, we will be looking at Starbucks Corp. symbol (SBUX).
On the ADX indicator below the chart, notice how the red -DI line has crossed the +DI line (green). This signals bearish moves 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. The pattern looks to be in a bearish direction. 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 80 or if the -DI line were to turn down.
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.
SBUX’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.
Starbucks (SBUX) has been heading down for a week. We want the -DI to stay above the -DI (red line above green) to consider a Put trade. Then, we’ll hope the ADX will turn up to show strength.
The first target is $75. We will keep an eye on SBUX over the next couple weeks.
To buy shares SBUX today, price would be approximately $81. You would not buy stock when you are expecting the price to go down. You would wait until if 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 SBUX’s stock with an April 29th expiration date for the $77 strike premium would be approximately $1.09 today or a total of $109 per contract. If price fell the expected $5, the premium might increase approximately $2.50 to $3.59 per share on your 100-share contract. This is a gain of $2.50 on your $1.09 investment or $250 profit, a 229% 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,
Wendy Kirkland
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 looked at AAPL April 29th expiration 185 Calls. Price started dropping on Tuesday and continued to drop throughout the week. There would have been no trade.
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