Yesterday, we looked at a Daily Price Chart for Adobe Systems, Inc. noting that the stock’s OBV line is sloping down, validating ADBE’s downward movement.
For today’s Trade of the Day e-letter we will be looking at a daily price chart for Snap Inc. stock symbol: SNAP.
Before breaking down SNAP’s daily chart let’s first review what products and services the company offers.
Snap Inc. operates as a camera company in North America, Europe, and internationally. The company offers Snapchat, a camera application with various functionalities, such as Camera, Communication, Snap Map, Stories, and Spotlight that enable people to communicate visually through short videos and images.
Now, let’s begin to break down the Daily Price chart for SNAP stock.
Below is a Daily Price chart with the 50-Day EMA and 100-Day EMA for SNAP.
50-Day EMA and 100-Day EMA ‘Sell’ Signal
The 50-Day Exponential Moving Average (EMA) and 100-Day EMA are moving average indicator lines that can provide buy and sell signals when used together. When the shorter-term 50-Day EMA crosses above or below the longer-term 100-Day EMA, this provides either a buy or sell signal depending on which direction the stock price is moving.
- 50-Day EMA line Above 100-Day EMA = Price Uptrend = Buy signal
- 50 Day EMA line Below 100-Day EMA = Price Downtrend = Sell signal
When the 50-Day EMA (blue line) crosses above the 100-Day EMA (red line) this indicates that the stock’s buying pressure has begun to outweigh the selling pressure signaling a ‘buy’ signal. When the 50-Day EMA crosses below the 100-Day EMA this indicates that the selling pressure has begun to outweigh the buying pressure signaling a ‘sell’ signal.
Sell SNAP Stock
As the chart shows, on November 3rd, 2021, the SNAP 50-Day EMA, crossed below the 100-Day EMA.
This crossover indicated the selling pressure for SNAP stock exceeded the buying pressure. For this kind of crossover to occur, a stock has to be in a strong bearish trend.
Now, as you can see, the 50-Day EMA is still below the 100-Day EMA meaning the ‘sell’ signal is still in play.
As long as the 50-Day EMA remains below the 100-Day EMA, the stock is more likely to keep trading at new lows and bearish positions should be initiated.
Our initial price target for SNAP stock is 12.80 per share.
Profit if SNAP is Down, Up, or Flat
Now, since SNAP’s 50-Day EMA is trading below the 100-Day EMA, the stock will likely continue its trend downward. Let’s use the Hughes Optioneering calculator to look at the potential returns for a SNAP put option spread.
The Put Option Spread Calculator will calculate the profit/loss potential for a put option spread based on the price change of the underlying stock/ETF at option expiration in this example from a 10.0% decrease to a 10.0% increase in SNAP stock at option expiration.
The goal of this example is to demonstrate the ‘built in’ profit potential for option spreads and the ability of spreads to profit if the underlying stock is down, up, or flat at option expiration. Out of fairness to our paid option service subscribers we don’t list the option strike prices used in the profit/loss calculation.
The prices and returns represented below were calculated based on the current stock and option pricing for SNAP on 6/28/2022 before commissions.
Built in Profit Potential
For this option spread, the calculator analysis below reveals the cost of the spread is $200 (circled). The maximum risk for an option spread is the cost of the spread.
The analysis reveals that if SNAP stock is flat or down at all at expiration the spread will realize a 50.0% return (circled).
And if SNAP stock increases 10.0% at option expiration, the option spread would make a 44.8% return (circled).
Due to option pricing characteristics, this option spread has a ‘built in’ 50.0% profit potential when the trade was initiated.
Option spread trades can result in a higher percentage of winning trades compared to a directional option trade if you can profit when the underlying stock/ETF is up, down or flat.
A higher percentage of winning trades can give you the discipline needed to become a successful trader.
The Hughes Optioneering Team is here to help you identify winning trades just like this one.
Interested in accessing the Optioneering Calculators? Join one of Chuck’s Trading Services for unlimited access! The Optioneering Team has option calculators for six different option strategies that allow you to calculate the profit potential for an option trade before you take the trade.
Chuck’s $3,000 Trading Scholarship
I don’t want you to miss a single opportunity to reach your goals. That’s why I’d like to offer you a scholarship of the full $3,000 Enrollment Fee of my exclusive Weekly Option and Trade Alert Service.
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Wishing You the Best in Investing Success,
Editor, Trade of the Day
Have any questions? Email us at email@example.com
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