SPX Monthly Chart: Dec 27, 2020 Edition

Dec 27th,
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.
ECL
The first profit opportunity we will review this week is s stock purchase in ECL, or
Ecolab Inc. ECL is the global leader in cleaning, sanitizing, food safety and infection
control products and services.
ECL Monthly Chart
The monthly chart

shows that ECL hit a
new record high in June.
Last month’s bullish
trading suggests that
the pullback from the
June high is over and
the uptrend is
resuming.
ECL Daily Chart
The daily chart shows
that the overall trends
in ECL has been up
since March. This
month’s pullback gives
us a buying
opportunity.
We recommend buying
ECL stock at current
price levels. The ECL
dividend yield is 0.9 %.
PWR
The next profit opportunity we will review this week is a call option purchase in
PWR, or Quanta Services, Inc. PWR is a leading specialized contracting services
company, delivering infrastructure solutions.
PWR Monthly Chart
The monthly chart
shows that PWR has
been in a strong bull
trend since March.
There are no signs of a
peak in the movement.
The daily chart for PWR depicts a bullish pattern of higher highs and higher lows
since the March low. A new higher low bottom appears to be in place at last
week’s low.
PWR Daily Chart
We noted that we want to
buy a call in PWR. We will
first look at selecting a call
option strike price for
purchasing an PWR call
option. PWR is currently
trading at 70.93. Let’s look
at buying the PWR February
19th 60-strike call. The
February 19 options expire
in 53 days.
We will analyze this option using the Put Option Purchase calculator. The Put Option
Purchase calculator will show the profit potential for a put option purchase based on
the price change in the underlying stock/ETF at option expiration. The price change
shown in the example below ranges from a 0% change to a 12.5% decrease.
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 0.67 points (boxed in red). The time value of 0.67 is less
than 1% of the 70.93 stock price, so this strike price qualifies under the 1% Rule.
The second row from
bottom of the calculator
Buy to Open the PWR Feb 19 60-Strike Call
lists the dollar profit
potential. The bottom row
lists the percent return
profit potential. We can see
that if the PWR stock price
increases 1% at option
expiration (boxed in green)
a 0.3% or $4 profit will be
realized. This confirms the
1% Rule of profiting with
only a 1% decrease in the
stock price.
There is no limit on the Buy to Open the PWR Feb 19 60-Strike Call
profit potential of call
option purchases if the
underlying stock
continues to increase in
price. If PWR increases
10% between now and
option expiration, the
Call Option Purchase
Calculator shows that the
60-strike call will realize
a 55.4% or $642 profit
(boxed in green).
On the other hand, if PWR stays flat at option expiration, the 60-Strike Call will lose -
5.8% or -$67. If we bought an at the money or out of the money option and the stock
price was flat at option expiration, the loss could be 100%.
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 PWR February 19 60-Strike Call at current prices.
AYX
The next profit opportunity we will consider this week is in AYX, or Alteryx, Inc.
Alteryx is a computer software company. AYX products are used for data science and
analytics. Alteryx seeks to enable advanced analytics to be performed by any data
worker.
AYX Monthly Chart
We trade with the trend. If

the stock price is below
the moving average line,
the trend is down.
AYX Daily Chart
The daily chart for AYX
shows that the overall trend
has been down since the July
high. A further decline is
expected.
We are going to review a put

debit spread for AYX.
Traders who want a more

leveraged approach can buy
AYX puts.
Buy to Open the AYX Feb 19 145-Strike Put

Sell to Open the AYX Feb 19 135-Strike Put
We can see from this put
option spread analysis that
if the AYX stock price
increases by 2.5%, remains
flat, or decreases in price
when the options expire, the
spread will make a 40.8 or
$290 profit. If AYX is up 5%
at expiration, the profit will
be 35.2 or $250. the AYX
stock price is up 7.5% at
option expiration, the trade
will make 10.2% or $77.
AXSM
The last profit opportunity we will consider this week is AXSM, or Axsome
Therapeutics, Inc. AXSM is a biopharmaceutical company. AXSM is focused on
developing novel therapies for the management of pain and other central nervous
system disorders.
AXSM Monthly Chart
The monthly chart shows

that AXSM went almost
straight up from October
to December last year.
After a sharp decline, a
strong rally, and a long
pause, AXSM appears to be
ready for another move
up.
AXSM Daily Chart

The daily chart for AXSM
shows a strong advance in
April and May followed by
months of sideways trading.
Sideways trading after a bull
move is usually followed by a
further advance.
We are going to review a call
debit spread for AXSM.
Traders who want a more
leveraged approach can buy
AXSM calls.
Buy to Open the AXSM Feb 19 70-Strike Call
We can see from this call Sell to Open the AXSM Feb 19 80-Strike Call
option spread analysis
that if the AXSM stock
price declines by -7.5%,
remains flat, or increases
in price when the options
expire, the spread will
make a 49.3% or $330
profit.
This week we recommended the following:
Buy ECL Stock
Buy to Open the PWR Feb 19 60-Strike Call
Buy to Open the AYX Feb 19 145-Strike Put
Sell to Open the AYX Feb 19 135-Strike Put
Buy to Open the AXSM Feb 19 70-Strike Call
Sell to Open the AXSM Feb 19 80-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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Dec 27th,

SPX Monthly Chart

ECL Monthly Chart

The monthly chart

We trade with the trend. If

We are going to review a put

Traders who want a more

Buy to Open the AYX Feb 19 145-Strike Put

The monthly chart shows

AXSM Daily Chart

Note: Profit performance displayed in this newsletter does not include

Good Trading and

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