Dear Fellow Trader,
Happy True Strength Tuesday!
It takes inner strength to be a successful options trader and avoid reactive trading. Here is a quick note from Wendy on this idea:
Be relentless with your personal choices and you’ll make your mark as you achieve your goals.
It brings me joy to share that you don’t need special education or to sit in front of the computer all day to trade options. It can be easily learned if you are interested in spending an hour or so a week earning money in what could be considered “renting” stocks for a short period of time.
This is why I show you the details about an equity’s symbol and pattern each week.
Market Snapshot
The Dow Jones Industrial Average and other major indexes kept climbing Tuesday as investors took a bullish tone ahead of key economic data. Building on Monday’s gains, the Dow industrials climbed 0.7% while the S&P 500 gained 1.3% in recent action. Among the sectors, technology and communication services gained the most while materials and consumer staples lagged. The Nasdaq led the major indexes with a 1.7% jump. On the economic front, first-quarter GDP results are due Thursday while the Federal Reserve’s preferred inflation gauge, the core personal consumption expenditures price index, is expected to follow on Friday. Both are considered vital data points for the Fed. Economists expect the inflation index to rise slightly to 2.6% after February’s 2.5% gain on an annual basis.
I am going to call Tuesday “QQQs Day”. Each Tuesday, I will focus on what the QQQ is doing with the hope it will help give us a clue about the market’s upcoming moves.
QQQ, or the Invesco QQQ Trust, is an exchange-traded fund that trades on the Nasdaq under the symbol QQQ. It is designed to track the Nasdaq ETF stock market index. This fund is the second largest ETF in the world and gives a good overall picture of the market. QQQ includes shares from the top Nasdaq companies.
The chart of the QQQ below is a weekly chart with EMAs overlying the candles. The description coming up next explains how to use exponential averages.
The image below is Tuesday’s price activity as of close of the market.
This chart image is courtesy of FINVIZ.com, a free website that gives a quick view of each day’s movement.
Fibonacci Exponential Moving Averages (EMA)
According to the definition at Stockcharts.com, exponential moving averages (EMAs) reduce the lag seen in simple moving averages by applying more weight to recent prices. The weighting applied to the most recent price depends on the number of periods in the moving average. We are applying 8, 21, and 55 weekly periods for our entry signals.
EMAs differ from simple moving averages in that a given day’s EMA calculation depends on the EMA calculations for all the days prior to that day. You need far more than 10 days of data to calculate a reasonably accurate 10-day EMA.
There are three steps to calculating an exponential moving average (EMA). First, calculate the simple moving average for the initial EMA value. An exponential moving average (EMA) must start somewhere, so a simple moving average is used as the previous period’s EMA in the first calculation. Second, calculate the weighting multiplier. Third, calculate the exponential moving average for each day between the initial EMA value and today, using the price, the multiplier, and the previous period’s EMA value.
Charting services or your broker’s chart service figure these calculations for you.
As mentioned, entry signals are based on the use of 8, 21, and 55 weekly averages. (8, 21 and 55 are Fibonacci numbers that are a special sequence of numbers that I prefer.) As mentioned, we are zeroing in on 8 EMA (short term), 21 EMA (medium term) and 55 EMA (long term).
EMA Buy Signal
Each candle on the chart represents price movement over one week. The most recent EMA on this chart are heading back up.
Potential QQQ Trade:
If the price rose to $420, you could consider a Call trade. $430 is the short-term target.
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
To buy stock shares of QQQ today would cost approximately $419.64 per share. If price went up to $430, you would make $10.36 per share.
Let’s discuss a Call options trade for our example. If you bought one Call option that covered 100 shares of QQQ for the 420 strike, it would cost about $8.02 for the May 17th expiration date. This would be an investment of $802. If the price rose the expected $10.00, you could expect to make approximately $5.00. This would be a $500 profit on your $802 investment, or 62% profit.
Option trading is truly unique in its ability to give traders the opportunity to trade an equity’s price move in either direction.
I want to stress, when you trade options, you can close the trade anywhere along the line to take profit (or loss). You don’t have to wait until it hits the target or until expiration day. You also want to wait for the indicator confirmation and don’t jump-the-gun with an early entry.
Trading options can be a win, win, win opportunity. Options often offer a smaller overall investment, covering more shares of stock and potential for greater profits.
What’s Next? I Can Hardly Wait!
Keep an eye on your charts, and I will keep sharing what I have my eye on. If you want to get deeper into how I find these winners, be sure to check out the programs on Love Your Options’ Virtual Academy (https://loveyouroptions.com/) to learn more about options.
For updates on previous potential trades we have discussed, scroll to the bottom of this message.
I love teaching and write my strategy books as clear as I write these emails. I try to think of the questions you’ll ask before you ask them.
Our lives should be filled with joy. As many minutes throughout the day as possible, we should be happy. Figure out what you love and do it. Love what you do, and with all your heart give yourself to that love. Enjoy your life and the people in it.
I wish you the very best,
Wendy
Past potential trade update:
Last week we discussed buying 430 puts. On 4-16 the May 17th 430 put was $8.60. You could have sold on 4-19 for $18.70, a 117% profit.