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SPX Monthly Chart: Sept. 27, 2020 Edition

The document discusses 4 potential stock and option trades - long calls on SQ and AWK, a put debit spread on RETA, and a call debit spread on AVLR. Technical analysis of monthly and daily charts is provided for each stock, showing bullish trends for SQ and AWK, and bearish trends for RETA. The document recommends going long on SQ and the AWK November 120-strike call, and provides analysis showing the potential profits of a put debit spread on RETA and call debit spread on AVLR.

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Sengottu Velu
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191 views7 pages

SPX Monthly Chart: Sept. 27, 2020 Edition

The document discusses 4 potential stock and option trades - long calls on SQ and AWK, a put debit spread on RETA, and a call debit spread on AVLR. Technical analysis of monthly and daily charts is provided for each stock, showing bullish trends for SQ and AWK, and bearish trends for RETA. The document recommends going long on SQ and the AWK November 120-strike call, and provides analysis showing the potential profits of a put debit spread on RETA and call debit spread on AVLR.

Uploaded by

Sengottu Velu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 7

Sept.

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.

SQ
The first profit opportunity we will review is in SQ, or Square, Inc. SQ offers
financial services and marketing services. SQ provides payments and point-of-
sale systems, including hardware and software to accept payments, streamline
operations and analyze business information.

SQ Monthly Chart

The monthly chart


shows that SQ has been
going almost straight up
since this year’s low.
SQ Daily Chart
The daily chart shows
that SQ has spent most
of the last six months
above the Upper Keltner
Channel. That’s a sign
of an unusually strong,
steady bull trend. This
month’s little dip gives
us a buying
opportunity.
We recommend buying
SQ stock at current
price levels.

AWK
The next profit opportunity we will review this week is a call option purchase in
AWK, or American Water Works Company, Inc. AWK is the largest and most
geographically diverse publicly traded U.S. water and wastewater utility company.
AWK Monthly Chart

The monthly chart


shows that AWK has
been in an overall bull
trend since the chart
started in 2015.
The daily chart shows that AWK was in a strong bull trend from the March low
until the August high. AWK has been going sideways since then. Sideways trading
in a bull trend is usually followed by a further advance.
AWK Daily Chart
We will first look at selecting
a call option strike for
purchasing an AWK call
option. AWK is currently
trading at 144.23. Let’s look
at buying the November 20th
expiration 120-strike call.
November 20th options have
54 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 up 1% for the call 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 1.17 points (boxed in red). The time value of 1.17 is less
than 1% of the 144.23 stock price, so this strike price qualifies under the 1% Rule.
The second row from
bottom of the calculator
Buy to Open the AWK Nov 20 120-Strike Call lists the dollar profit
potential. The bottom row
lists the percent return
profit potential. We can see
that if the AWK stock price
increases by 1% (boxed in
green) at option expiration,
a 1.1% profit will be
realized. This confirms the
1% Rule of profiting with
only a 1% increase in the
stock price.
Buy to Open the AWK Nov 20 120-Strike Call
If the AWK stock price
increases by 10% between
now and option
expiration, the Call
Option Purchase
Calculator shows that the
120-Strike Call will
realize a 52.2% or $1325
profit (boxed in green).

On the other hand, if AWK is flat at 144.23 at option expiration, the 120- Strike Call
will only lose -4.6% or -$117. 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 AWK November 20 120-Strike Call at current prices.

RETA
The next profit opportunity we will consider this week is in RETA, or Reata
Pharmaceuticals, Inc. RETA is a clinical-stage biopharmaceutical company.

RETA Monthly Chart

The monthly chart shows


that RETA is below the
moving average line. If a
stock is below the moving
average line, the trend is
down. A further decline is
expected.
RETA Daily Chart
The daily chart shows that the
overall trend in FRETA has
been down since the February
high. Last week’s bearish
trading points to a further
decline.
We are going to review a put
debit spread for RETA.
Traders who want a more
leveraged approach can buy
RETA puts.

Buy to Open the RETA Nov 20 110-Strike Put


Sell to Open the RETA Nov 20 100-Strike Put We can see from this put
option spread analysis that
if the RETA stock price
increases by .5%, remains
flat, or decreases in price
when the options expire, the
spread will make a 53.8% or
$350 profit. If the RETA
stock price is up 7.5% at
option expiration, the trade
will make 40.5% or $263.

AVLR
The next profit opportunity we will consider this week is in AVLR, or Avalara, Inc.
Avalara is a provider of web-hosted sales and tax management services.

Learn More
about
Smart
Option
Strategies>
AVLR Weekly Chart

The weekly chart shows


that AVLR has been in an
overall bull trend since
late 2018. AVLR hit a new
record high in July. It’s
been going sideways since
then. Sideways trading in a
bull trend is usually
followed by a further
advance.

ALVR Daily Chart


The daily chart also shows
that AVLR has been going
sideways since the July high.
Last week’s trading suggests
that the sideways pause is
over and the bull trend is
resuming.
We are going to review a call
debit spread for AVLR.
Traders who want a more
leveraged approach can buy
AVLR calls.

We can see from this call Buy to Open the AVLR Nov 20 115-Strike Call
option spread analysis that if Sell to Open the AVLR Nov 20 125-Strike Call
the AVLR stock price
declines by -2.5%, remains
flat, or increases in price
when the options expire, the
spread will make a 70.9% or
$415 profit. If AVLR is down
-5% at expiration, the profit
will be 53.4% or $312. If
AVLR is down -7.5% at option
expiration, we will lose -2.4%
or -$14.
This week we recommended the following:
Buy SQ stock
Buy to Open the AWK November 20 120-Strike Call
Buy to Open the RETA November 20 110-Strike Put
Sell to Open the RETA November 20 100-Strike Put
Buy to Open the AVLR November 20 115-Strike Call
Sell to Open the AVLR November 20 125-Strike Call

Note: Profit performance displayed in this newsletter does not include


commission cost.

Thank you for


subscribing and
we’ll see you next
week!

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