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    SPX Monthly Chart: August 23, 2020 Edition

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    ngdaniel13029
    The document discusses 4 potential stock trades based on technical analysis of stock charts: 1) A long position in XEL stock, which has been in a bullish trend for years and just pulled back from new highs, presenting a buying opportunity. 2) A call option purchase on WM, which qualifies under the "1% rule" for limiting time value and stands to profit from further advances in WM's bullish trend. 3) A put debit spread on ICPT, which has been bearish and is expected to continue declining, allowing the spread to profit. 4) A call debit spread on NVTA following it hitting a new high, expecting further gains to profit the spread.

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    SPX Monthly Chart: August 23, 2020 Edition

    Uploaded by

    ngdaniel13029
    82 views7 pages
    The document discusses 4 potential stock trades based on technical analysis of stock charts: 1) A long position in XEL stock, which has been in a bullish trend for years and just pulled back from new highs, presenting a buying opportunity. 2) A call option purchase on WM, which qualifies under the "1% rule" for limiting time value and stands to profit from further advances in WM's bullish trend. 3) A put debit spread on ICPT, which has been bearish and is expected to continue declining, allowing the spread to profit. 4) A call debit spread on NVTA following it hitting a new high, expecting further gains to profit the spread.

    Original Title

    Optioneering Newsletter (Aug 23, 2020)

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    The document discusses 4 potential stock trades based on technical analysis of stock charts: 1) A long position in XEL stock, which has been in a bullish trend for years and just pulled back from new highs, presenting a buying opportunity. 2) A call option purchase on WM, which qualifies under the "1% rule" for limiting time value and stands to profit from further advances in WM's bullish trend. 3) A put debit spread on ICPT, which has been bearish and is expected to continue declining, allowing the spread to profit. 4) A call debit spread on NVTA following it hitting a new high, expecting further gains to profit the spread.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    82 views7 pages

    SPX Monthly Chart: August 23, 2020 Edition

    Uploaded by

    ngdaniel13029
    The document discusses 4 potential stock trades based on technical analysis of stock charts: 1) A long position in XEL stock, which has been in a bullish trend for years and just pulled back from new highs, presenting a buying opportunity. 2) A call option purchase on WM, which qualifies under the "1% rule" for limiting time value and stands to profit from further advances in WM's bullish trend. 3) A put debit spread on ICPT, which has been bearish and is expected to continue declining, allowing the spread to profit. 4) A call debit spread on NVTA following it hitting a new high, expecting further gains to profit the spread.

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    You are on page 1of 7

    August 23rd , 2020

    Edition
    SPX Monthly Chart
    The S&P price is above
    the moving average
    line, so the trend is
    up. There could be a
    pullback soon, so
    we’re going to hedge a
    bit. This week we will
    review three bullish
    trades and one bear
    trade.

    XEL
    The first profit opportunity we will review today is a stock purchase in XEL, or
    Xcel Energy Inc. XEL is a public utility company that is engaged in the
    generation, transmission and distribution of electricity and the transportation,
    storage and distribution of natural gas.

    XEL Monthly Chart

    The monthly chart


    shows that XEL has been
    in a bull trend since the
    chart started in 2012.
    XEL Daily Chart
    The daily chart for XEL is
    also bullish. XEL hit a new
    record high this month.
    The pullback from this
    month’s high gives us a
    buying opportunity.

    We recommend buying
    XEL stock at current
    price levels. The XEL
    dividend yield is 2.5%.

    WM
    The next profit opportunity we will review this week is a call purchase in WM, or
    Waste Management, Inc. WM is a leading provider of integrated environmental
    solutions in North America
    WM Monthly Chart

    The monthly chart


    shows that WM has
    been in an overall bull
    trend since 2012.
    After a deep pullback
    early this year, the
    bulls are back in
    control.
    The daily chart for WM has a new bullish pattern of higher highs and higher lows
    since the March low. A further advance is expected.

    WM Daily Chart
    We will first look at selecting
    a call option strike for
    purchasing a WM call option.
    WM is currently trading at
    111.16. Let’s look at buying
    the October 16 expiration
    100-strike call. October 16th
    options have 53 days to
    expiration. We will analyze
    this option using the
    Optioneering Call Option
    Purchase Calculator.

    The Call Option Purchase Calculator will calculate the profit potential for a call option
    purchase trade based on the price change in the underlying stock/ETF at option
    expiration. In this example the price changes the calculator shows will be from a 12.5%
    increase in the stock price to remaining flat at expiration.
    We developed what we call the 1% Rule to help us select an option strike price. The 1%
    rule says to limit the time value portion of the option to less than 1% of the stock
    price. If you limit the time value portion of an option to 1%, the stock price only
    has to move down 1% for the put to breakeven and start profiting.
    The calculator will also calculate the time value portion of an option. With this option
    purchase, the time value is 0.39 points (boxed in red). The time value of 0.39 is less
    than 1% of the 111.16 stock price, so this strike price qualifies under the 1% Rule.
    The second row from
    Buy to Open the WM October 16 100-Strike Call bottom of the calculator
    lists the dollar profit
    potential. The bottom row
    lists the percent return
    profit potential. We can
    see that if the WM stock
    price increases by 1%
    (boxed in green), a 6.2%
    profit will be realized. This
    confirms the 1% Rule of
    profiting with only a 1%
    increase in the stock price.
    There is no limit on the
    profit potential of call Buy to Open the WM October 16 100-Strike Call
    option purchases if the
    underlying stock
    continues to increase in
    price. If the WM stock
    price increases by 10%
    between now and option
    expiration, the Call
    Option Purchase
    Calculator shows that
    the 100-Strike Call will
    realize a 92.9% or $1073
    profit (boxed in green).
    On the other hand, if WM is flat at 111.16 at option expiration, the 100-Strike Call will
    only lose -3.4% or -$39. If we bought an at the money or out of the money option and
    the stock price was flat at option expiration it could result in a 100% loss.
    Remember, if you purchase an at the money or out of the money strike call option and
    the underlying stock/ETF is flat or down at option expiration, it could result in a 100%
    loss for your option trade! Using the 1% Rule to select an option strike price will
    increase your percentage of winning trades compared to trading at the money or out of
    the money strike calls. This higher accuracy can make you a more successful trader.
    We recommend buying the WM October 16 100-Strike Call at current prices.

    ICPT
    The next profit opportunity we will consider this week is in ICPT, or Intercept
    Pharmaceuticals Inc. ICPT is a biopharmaceutical company that’s focused on the
    development and commercialization of therapeutics to treat chronic liver disease.

    ICPT Monthly Chart

    The monthly chart shows


    that ICPT has been in a
    bear trend since the 2014
    high.
    ICPT Daily Chart

    The daily chart for ICPT has a


    bearish pattern of lower highs
    and lower lows since the
    January high. A further
    decline is expected.
    We are going to review a put
    debit spread for ICPT.
    Traders who want a more
    leveraged approach can buy
    ICPT puts.

    Buy to Open the ICPT October 16 60-Strike Put


    Sell to Open the ICPT October 16 50-Strike Put We can see from this put
    option spread analysis that
    if the ICPT stock price
    increases by 2.5%, remains
    flat, or decreases in price
    when the options expire, the
    spread will make a 43.9% or
    $305 profit. If the ICPT stock
    price is up 5% when the
    options expire, the profit
    will be 35% or $243. If the
    ICPT stock price is up 7.5%
    at option expiration, we will
    make 0.3% or $2.

    NVTA
    The last profit opportunity we will consider this week is in NVTA, or Invitae
    Corporation. NVTA is engaged in genetic diagnostics for hereditary disorders
    which include breast, colon and pancreatic cancer.
    NVTA Monthly Chart

    The monthly chart


    shows that NVTA just
    rallied to a new record
    high. A new record high
    is a positive sign for the
    bulls.

    NVTA Daily Chart

    The daily chart shows that


    NVTA hit the new record
    high on Friday. A further
    advance is expected.
    We are going to review a Call
    Debit Spread trade for NVTA.
    Traders who want a more
    leveraged approach can buy
    NVTA calls.

    Buy to Open NVTA October 16 25-Strike Call


    We can see from this call Sell to Open NVTA October 16 35-Strike Call
    option spread analysis that if
    the NVTA stock price
    remains flat or increases in
    price when the options
    expire, the spread will make
    a 41.8% or $295 profit. The
    profits slide down from
    there. If NVTA is down -7.5%
    when the options expire, we
    will make a 9.2% or $65
    profit.
    This week we recommended the following:
    Buy XEL Stock
    Buy to Open the WM October 16 100-Strike Call
    Buy to Open the ICPT October 16 60-Strike Put
    Sell to Open the ICPT October 16 50-Strike Put
    Buy to Open the NVTA October 16 25-Strike Call
    Sell to Open the NVTA October 16 35-Strike Call

    Note: Profit performance displayed in this newsletter does not include


    commission cost.

    Good Trading and


    we’ll see you next
    week!

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