Friday, August 6th, 2021
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 Dow has been up one day and down two as I type on Wednesday. The charts of the indices are going sideways. Earnings reports continue this week.
For today’s Trade of the Day, we will be studying the Treasury Bond ETF (TLT). Searching for symbols today has been a challenge. Many equities have had their indicators flip directions with the volatile swings and then have gone flat this week.
U.S. Treasury 20+ Year Bond Index (the “underlying index”). The fund generally invests at least 90% of its assets in the bonds of the underlying index and at least 95% of its assets in U.S. government bonds. The underlying index measures the performance of public obligations of the U.S. Treasury that have a remaining maturity greater than or equal to twenty years.
TLT continues rise this week and looks ready to head higher.
Let’s take a look at TLT weekly chart.
The ADX +DI (green line) is above the -DI and if it keeps heading up, the ADX line should turn 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 then the ADX turn 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 ready to head up on the ADX indicator, and if 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 turn up to continue its upward bias and then the black line to turn up as well. When it also turns up will be great- 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 if it flips up and continues to head up, it shows strength, and, once it happens, we will know strength will continue to flow into this equity. We will keep an eye on TLT over the course of the next few weeks.
If TLT’s price moves above $151, you could consider a trade. The short-term price target for TLT is $155 and then, perhaps, higher.
TLT Potential Trade – Showing Strength
This signal could give a quick payout if it continues its upward move, and the strength of this pattern continues. It looks as if it could push above $155.
To buy shares of TLT would cost approximately $151 per share and if it reaches its near-term target of $155 that would be a gain of $4.
This is a great example of the benefits of trading options. Let’s discuss this as a study case.
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 151 by Friday a call trade can be considered.
If you buy 4 shares of TLT at $150, you will invest $600. If the stock increases in price to $155, you will earn a profit of $ 5 per share or $20 for the 4 shares or about 2.6%.
If you bought one option contract covering 100 shares of TLT with a Aug 27th expiration date for the $155 strike and premium would be approximately $.85 today or $85 per 100 share contract. If price increased to the expected $155 target or a gain of $4 over the next few weeks, the premium would likely increase $3 to $3.85 (3 x 100 share contract = $300 Profit.) $300 profit on your $85 investment, this is an 352% gain. Nice! Terrific 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,
Past Equity Candidates:
Four weeks ago, we examined LULU with an August 6th expiration and 390 strike and a premium of 5.35. Premium went as high as 21.90 Wednesday this week as I type. Crazy good trade.
Three weeks ago, we studied TWTR with a 75 strike, Aug 20 expiration and a premium of 3.35. It headed down with the pullback the last two weeks.
Two weeks ago, we looked at SPCE with Aug 20 expiration and a 37.50 strike with premium at 2.49. By Friday, the premium was about 1.70 versus 2.49 on Weds at possible entry. Today it is down to .80 but price is heading up again.
Last week, we investigated DIS with August 20 expiration and 185 strike with a premium of 2.76. DIS did not pan out. The +DI crossed down again, closing the trade.