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 Starbucks Corp. (SBUX) 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 below 0, it is a sign of bearish strength. In this case, we can see that on the SBUX chart below.
It is important to confirm this momentum. With SBUX we would want to see it move to $91. If that happens it tells us the next target would be $88 or lower.
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 Put option contract covering 100 shares of SBUX’s stock with a Oct 20th expiration date for the 88 strike, the premium would be approximately $1.04 per share, or a total of $104 for the contract of 100 shares. If price fell the expected $3 over the next few weeks, the premium would likely increase approximately $1.50 to $2.54. This is a gain of 44% 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 CROX Puts. On 9-26 the Oct 20th 80 puts were $1.80. You could have sold on 9-27 for $2.05, a 14% profit.