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    2019 April 7

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    Alejandro Mufardini
    The document provides a summary of four bullish trades including the purchase of stock in NI and an option purchase in AEP. It also reviews a call debit spread in LABU and another in BRZU. Key details about each trade and the rationale are given.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    2019 April 7

    Uploaded by

    Alejandro Mufardini
    12 views14 pages
    The document provides a summary of four bullish trades including the purchase of stock in NI and an option purchase in AEP. It also reviews a call debit spread in LABU and another in BRZU. Key details about each trade and the rationale are given.

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    The document provides a summary of four bullish trades including the purchase of stock in NI and an option purchase in AEP. It also reviews a call debit spread in LABU and another in BRZU. Key details about each trade and the rationale are given.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    12 views14 pages

    2019 April 7

    Uploaded by

    Alejandro Mufardini
    The document provides a summary of four bullish trades including the purchase of stock in NI and an option purchase in AEP. It also reviews a call debit spread in LABU and another in BRZU. Key details about each trade and the rationale are given.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    You are on page 1of 14

    Optioneering Newsletter

    April 7, 2019

    ***We’re changing the format of the newsletter this week. We’re going
    to add a stock purchase and an option purchase, along with two debit
    spreads***

    In this week’s Optioneering newsletter we are going to start by reviewing


    the recent price performance of the S&P 500 Index and then look at
    several new profit opportunities.

    $SPX Monthly Chart

    The S&P is above the moving average line, so the trend is up. From looking
    at the $SPX monthly chart we can see that since the correction at the end of
    2018 the S&P 500 has been on a strong bull trend. Because of this we will
    review four bullish trades today.
    The first profit opportunity we will review this week is a stock purchase in NI, or
    NiSource, Inc. NiSource Inc. is one of the largest fully-regulated utility
    companies in the United States, serving approximately 3.5 million natural gas
    customers and 500,000 electric customers across seven states through its local
    Columbia Gas and NIPSCO brands.

    NI Monthly

    N I hit a new record high last month. As we’ve said many times, new record
    highs are bullish.
    NI Daily

    The daily chart shows a little pullback from last month’s new record high. The
    pullback gives us a buying opportunity. The $28.26 stock price should be attractive
    to most traders. Plus, NI has a 2.84% dividend yield.

    We recommend buying NI stock at current prices.


    The next profit opportunity we will review this week is an Option
    Purchase in AEP, or the American Electric Power Company, Inc.
    AEP, or the American Electric Power Company, Inc. is one of the
    largest investor-owned electric public utility holding companies in
    the United States. AEP's electric utility operating companies
    provide generation, transmission and distribution services to the
    retail customers in Arkansas, Indiana, Kentucky, Louisiana,
    Michigan, Ohio, Oklahoma, Tennessee, Texas, Virginia and West
    Virginia.

    AEP Monthly Chart

    AEP has been in a strong bull trend since the chart started in 2013. Like
    NI, AEP hit a new record high last month. As we said above, New record
    highs are bullish.
    AEP Daily Chart

    As we said above, AEP just hit a new all-time high last month. Like NI,
    the pullback from the record high gives us a buying opportunity.

    We are now going to review a call option purchase for AEP.

    We will first look at selecting a call option strike price for purchasing an AEP call
    option. AEP is currently trading at 83.57, so let’s take a look at the May 17 2019
    75-strike calls. May call options expire in about 6 weeks. 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 from a 12.5% increase in stock price to a flat
    stock price.

    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 up 1% for the option 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 .23 points. The time value of .23 is less than
    1% of the 83.57 stock price so this strike price qualifies under the 1% Rule.

    Buy to Open the AEP May 17 75–Strike Call

    The second row from bottom of the calculator lists the dollar profit potential. The
    bottom row lists the percent return profit potential.

    We can see that if AEP stock increases 1% at option expiration (circled) a 6.9%
    profit will be realized confirming the 1% Rule of profiting with only a 1% increase
    in the stock price.
    There is no limit on the profit potential of call option purchases if the
    underlying stock continues to increase in price. If AEP increases 10%
    between now and option expiration, the Call Option Purchase Calculator
    shows that the 75-Strike Call will realize a 92.4% or $813 profit.

    On the other hand, if AEP is flat at 83.57 at option expiration, the 75-Strike
    Call will only lose -2.6% or -$23 compared to a 100% loss if we bought an at
    the money or out of the money option and the stock price was flat at option
    expiration.

    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 will
    result 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 and this higher accuracy can make you a more successful trader.

    We recommend buying the AEP May 17 2019 75-Strike Call at current


    prices.
    The next opportunity we will review this week is in LABU. LABU is the Direxion
    Daily S&P Biotech Bull 3X Shares ETF. LABU seeks daily investment results,
    before fees and expenses, of 300% of the performance of the S&P Biotechnology
    Select Industry Index.

    LABU Monthly Chart

    The monthly chart shows that LABU has been bullish since the December. It just
    crossed above the monthly moving average line. That means the monthly trend in
    LABU is now up.
    LABU Daily Chart

    On a daily basis, LABU appears to be ready for a further advance. The next upside
    target is 85.

    LABU is a leveraged ETF. While leveraged ETFs contain more risk, they usually
    possess higher premiums as a result. We suggest taking advantage of the high
    premiums offered by initiating option debit spreads.

    Traders who want a more leveraged approach can buy LABU weekly calls.
    Buy to Open LABU May 17 50-Strike Call
    Sell to Open LABU May 17 64-Strike Call

    We can see from this call option spread analysis that if the LABU ETF price
    declines by -2.5%, stays where it is, or increases in price when the options expire,
    we will make a 42.9% or $420 profit. If LABU is down 5% when the options expire,
    the profit will be 31.6% or $310. If LABU declines by -7.5% when the options
    expire, there will be a 14.7% or $144 profit.
    The last profit opportunity we will consider this week is in BRZU. BRZU is the
    Direxion Daily MSCI Brazil Bull 3X Shares ETF. BRZU seeks daily investment
    results, before fees and expenses, of 300% of the performance of the MSCI Brazil
    25/50 Index.

    BRZU Monthly

    Based on the big bullish bar, the monthly chart shows hat BRZU was very bullish in
    January. The subsequent pullback appears to be forming a higher low bottom. If
    the bullish setup works, the next upside target is above this year’s high.
    BRZU Daily

    The daily chart for BRZU also appears to have a higher-low bottom setup. On a
    daily basis, the next upside targets are 38 and 42. A break of support at last
    month’s low would void the bullish setup.
    Buy to Open BRZU May 17 20-Strike Call
    Sell to Open BRZU May 17 30-Strike Call

    We can see from this call option spread analysis that if the BRZU ETF price
    declines by -2.5%, stays where it is, or increases in price when the options expire,
    we will make a 39.3% or $285 profit. If BRZU is down 5% when the options expire,
    the profit will be 28.6% or $204. If BRZU declines by -7.5% when the options
    expire, there will be a 17.8% or $128 profit.

    Regarding Earnings Season: Most major stocks issue earnings reports during earnings season.
    There are four earnings seasons a year. The seasons begin in January, April, July, and October
    and they each last about two months. The reports can make an impact on the stock price. We don’t
    know if the impact is going to be positive or negative (or nothing at all). It’s up to you to decide if
    you want to be in a trade when the earnings report is announced. Here’s a link that can help you
    keep track of the report dates:

    https://www.earningswhispers.com/calendar

    Note: Profit performance displayed in this newsletter does not include commission costs.

    This newsletter includes some trading ideas following Chuck Hughes’ trading strategies along
    with educational information. For a complete listing of Chuck’s exact trades, including
    specific entries and exits, email alerts and real time Portfolio Tracking, please call Brad at 1-
    866-661-5664 or 310-647-5664 for special pricing for subscribers of this newsletter.
    For a limited time, we are offering a $3,000 Scholarship to join Chuck’s Inner Circle Trading
    Service to newsletter subscribers. Use the code NEWSLETTER to obtain this special pricing.

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