Dear Fellow Trader:
Happy Financial Freedom Friday!
Here’s a quick inspirational message from Wendy on how setting an expectation of personal abundance creates a mindset leading to financial freedom.
With option trading, there is a lot to learn. None of it is hard, it is an ascending path with steps and rest areas along the way. See every step you take on the option trading learning path as a step leading to happily-ever-after. Closer, closer. You are doing great!
I teach everyday people (like me) to trade options. I do my best to write in an understandable way as if we are talking while sitting on my deck in a relaxed atmosphere.
Market Snapshot
The Dow Jones Industrial Average rose from session lows in late trading and was higher by 0.3% ahead of the Labor Day weekend. The S&P 500 fell to the day’s lows at midday and gained 0.2% at 4 p.m. ET Friday. The Nasdaq gave back morning gains and was flat at the closing bell. Volume was lower on both the NYSE and Nasdaq compared with the same time on Thursday. The small-cap Russell 2000 gained 1% on Friday. Crude oil surged over 2% to trade at $85.78 a barrel. The yield on the benchmark 10-year Treasury note rose 8 basis points to 4.17%.
Activision Blizzard Inc.’s Profit Potential
For today’s potential Trade of the Day, we will be looking at Activision Blizzard Inc. (ATVI).
Before analyzing ATVI’s chart, let’s take a closer look at the company and its services.
Activision Blizzard, Inc., together with its subsidiaries, develops and publishes interactive entertainment content and services in the Americas, Europe, the Middle East, Africa, and the Asia Pacific. The company operates through three segments: Activision, Blizzard, and King. It develops and distributes content and services on video game consoles, personal computers, and mobile devices, including subscription, full-game, and in-game sales, as well as by licensing software to third-party or related-party companies that distribute Activision and Blizzard products.
Each candle on the weekly chart represents price movement over a 5-day (week) period. The indicator at the bottom of the chart is a True Strength Indicator (TSI). The description coming up next explains how to use the TSI.
True Strength Indicator
Stockcharts.com provides a great definition of the True Strength Index (TSI), which is an oscillator that fluctuates between positive and negative territory. As with many momentum oscillators, the centerline defines the overall bias. The bulls have the momentum edge when TSI is positive, and the bears have the edge when it’s negative.
As with PPO, a signal line can be applied to identify upturns and downturns. Signal line crossovers are, however, quite frequent and require further filtering with other techniques. Chart readers can also look for bullish and bearish divergences to anticipate trend reversals; however, keep in mind that divergences can be misleading in a strong trend.
TSI is somewhat unique because it tracks the underlying price quite well. In other words, the oscillator can capture a sustained move in one direction or the other. The peaks and troughs in the oscillator often match the peaks and troughs in price. In this regard, chart readers can draw trend lines and mark support/resistance levels using TSI. Line breaks as well as line crosses can then be used to generate signals.
A cross up through the TSI red signal is bullish, in that it is suggesting price has gone from bearish to bullish. A cross down through the red line suggests price is bearish.
If you find that you like the TSI Indicator as an easy-to-read indicator, you could consider read the books available at the Love Your Options website (https://loveyouroptions.com/) that explain full bullish and bearish patterns and indicators.
Potential ATVI Trade:
If ATVI’s price continues to move down, you could consider a Put trade. If price continues to move to $74, you could consider a Put option trade. We are expecting the TSI indicator to continue to head down.
ATVI’s is bearish as the signal line crosses. The short-term target is $70 and then lower.
Reminder: We have been using weekly charts to smooth out the current volatility of the market and to provide you time to consider your trade.
Check Out How an Option Trade Could Pay Out Big Time
These examples are provided to show how options work and the advantages they offer.
To buy shares of ATVI stock today, it would cost approximately $74.34 per share. You would wait until price found a bottom before buying stock.
Option trading offers the potential of a lower initial investment and higher percentage gain. It is like renting stock versus buying outright. Let’s take a look.
If you bought one Put option contract covering 100 shares of ATVI’s stock with an Oct 21st expiration date for the 70 strike, the premium would be approximately $.59 per share, or a total of $59 for the contract of 100 shares. If price fell the expected $4 over the next few weeks, the premium would likely increase approximately $2.00 to $2.59. This is a gain of 239% profit. That would be a nice trade over a short period of time!
It is exciting to make money if price rises or falls.
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.
Options often offer a smaller overall investment, covering more shares of stock and potential for greater profits. This is like renting stocks versus having to pay full price to buy.
This said, if you are having any kind of trouble taking advantage of these trades, we don’t want you to miss out. I have written books like Perfect Storm Trading that help traders just like you to understand the strategy and potential profits that options provide.
For updates on previous potential trades we have discussed, scroll to the bottom of this message.
I love to trade, and I love to teach. It is my thing. I am truly thankful for you and your efforts.
Being thankful is one of the strongest and most transforming states of being. It shifts your perspective from lack to abundance and allows you to focus on the good in your life, which in turn pulls more blessings into your reality.
I send you wishes for the very best,
Wendy
PS- Remember to recite the positive saying at the beginning of this newsletter a couple times a day. Knowing is seeing! You create in your life what you know to be true.
Past potential trade update:
Two weeks ago we discussed buying AAPL puts. On 9-23 the stock price reached our target entry and the premium was $2.52 for the 140 Put with an Oct 21st expiration date. On 9-30 the premium was $6.00 which is a 138% profit.
Last week we talked about buying BIDU puts. On 9-28 the premium for the 110 Oct 21st put was $2.27. On 9-29 the premium was $2.94. We will continue to monitor this trade.