Good morning! I noticed something on my charts I wanted to share with you. (I have also included an update on a previous trade at the end of this message.)
I was going through various patterns to look for great trades and found a great example in Lululemon Athletica. (LULU) that shows how powerful one of my favorite indicators is at spotting great trades. True Strength Index is effective at spotting strong trends and weeding out the weaker moves. To learn more about TSI, click here.
When TSI moves above 0, it is a sign of bullish strength. In this case, we can see that on the LULU chart below.
It is important to confirm this momentum. With LULU we would want to see it move to $380. If that happens it tells us the next target would be $390 or higher.
Option trading offers the potential of a lower initial investment and higher percentage gain. It is like renting stock versus buying out right. Let’s take a look.
If you bought one Call option contract covering 100 shares of LULU’s stock with a May 19th expiration date for the 390 strike, the premium would be approximately $4.95 per share, or a total of $495 for the contract of 100 shares. If price rose the expected $10 over the next few weeks, the premium would likely increase approximately $5.00 to $9.95. This is a gain of 101% profit. That would be a nice trade over a short period of time!
I want to remind you that you can sell to close and take profit any time along the line before the expiration date. You don’t have to hold the contract until expiration.
I love to trade, and I love to teach. It is my thing. I am truly thankful for you and your efforts.
Past potential trade update:
Last week talked about buying CRM calls. On 4-26 the 210 call was .58 for the May 19th expiration date. On 4-28 the premium was $1.09, a 88% profit.