Happy Fabulous Friday!
I teach everyday people (like me) to trade options. I do my best to write in an understandable way as if we are talking over the kitchen table.
The market was up 3 out of 4 days last week and has been up 3 days this week. December is often a bullish month. The Santa Rally is in full effect.
For today’s Trade of the Day, we will be looking at Johnson & Johnson, Symbol (JNJ).
Johnson & Johnson researches and develops, manufactures, and sells a range of products in the health care field worldwide. It operates through three segments: Consumer Health, Pharmaceutical, and Medical Devices. The company markets its products to general public, and retail outlets and distributors, as well as distributes directly to wholesalers, hospitals, and health care professionals for prescription use. Johnson & Johnson was founded in 1886 and is based in New Brunswick, New Jersey.
Let’s look at JNJ’s weekly chart.
The ADX +DI (green line) is above the -DI and the ADX line is heading straight up. As long as the +DI is above the -DI, price should rise. Green above red is an indication of strength. When the +DI is bullish and the ADX turns up, it shows strength. If you want to learn more about ADX, read on or, if not, scroll down to the alert.
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.
Check Out the Trade Alert Signal
Each candle on the chart represents price movement over a 5-day (week) period; therefore, it takes weeks for trades to play out. On the chart, the week is a bullish candle as I type. When the +DI crosses over the -DI line, it gives a buy signal (as the +DI line (green) 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 bullish, suggesting an upward move is gaining strength. I’d like to see the green line to continue its upward bias and then the black line to turn straight up and head up as well. All are bullish signs of strength. When the +DI crosses the ADX (black line) and when it rises, it shows a new burst of strength coming into the equity.
The Black ADX line is a strength line and as it flips up and continues to head up, it shows strength, and we’ll know strength will continue to flow into this equity. We will keep an eye JNJ the course of the next few weeks.
If JNJ’s price moves above or stays above $172, you could consider a trade. The short-term price target for JNJ is $177 and then, perhaps, higher. With the swings in past months, I am suggesting small profit targets until a market trend starts again.
JNJ Potential Trade – Showing Strength
This signal could give a quick payout if it continues its upward move, and the strength of this pattern continues. I am typing on Wednesday and JNJ started the day at $170+ and is heading up, if it continues above 172 showing it is moving up, a trade could be considered.
Option trading offers the potential of a lower initial investment and higher percentage gain. Let’s take a look and make a comparison.
The plus DI (green line) is above the -DI and if it stays above the -DI (red) line and rises above $172 by Friday a call trade can be considered.
To buy shares of JNJ would cost approximately $170 per share and if it reaches its near-term target of $177 that would be a gain of $7. Not a very large return on an investment of $170.
If you bought one option contract covering 100 shares of JNJ with an Jan 14th (Jan wk2) expiration date for the $175 strike and premium would be approximately $.55 today or $55 per 100 share contract. If price increased to the expected $177 target or a gain of $2 over the next few weeks, the premium would likely increase $1 ($1 x 100 share contract = $100 Profit.) $100 profit on your $55 investment, this is an 182% gain. Nice! Awesome trade if it hits it target!
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. Watch this video to learn how you can use option trading to achieve financial freedom. click here
Yours for a prosperous future,
Wendy Kirkland
Past Equity Candidates: We looked at KO two weeks ago. It would have expired on December 31st.
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