Optioneering Newsletter

August 25, 2019

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 still above the monthly moving average line, so the trend is
still up. However, the current monthly bar is weak, so we‘re going to
hedge a bit this week. We’ll stick with the long side in strong stocks and
we’ll review bearish positions in two weak ETFs.

The first profit opportunity we will review this week is a stock purchase in
NEM, or Newmont Goldcorp Corporation. Newmont Goldcorp
Corporation is a gold company and a producer of copper, silver, zinc,
and lead. The Company's portfolio of assets are located principally in
North America, South America, Australia, and Africa.

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 NEM Monthly Chart

The monthly chart shows that NEM was bullish in 2016, then it went
sideways for over two years, and now it’s bullish again.

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 NEM Daily Chart

The daily chart for NEM shows a strong bull move from the May low to the
July high. After the big move up, there was a bit of a dip and a pause.
Recent trading suggests that the pause is over, and the uptrend is
resuming.

We recommend buying NEM stock at current price levels. The dividend

yield for NEM is 1.4%.

The next profit opportunity we will review this week is an Option Purchase
for EQR, or Equity Residential, Inc. EQR is a real estate investment trust.
EQR’s primary business is the acquisition, development, and
management of multifamily residential properties. Its segments include
Boston, New York, Washington D.C., Southern California, San Francisco,
Seattle, and other Markets. Southern California includes Los Angeles,
San Diego, and Orange County. It is engaged in leasing of apartment
units to residents. It focuses on rental apartment properties in urban and
high-density suburban coastal gateway markets.

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 EQR Monthly Chart

The monthly chart shows that EQR has been in an overall bull trend
since 2009.

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 EQR Daily Chart

The daily chart shows that EQR has been heading higher all year. There
are no signs of a peak in the movement,

We are going to review a call option purchase for EQR.

We will first look at selecting a call option strike for purchasing an EQR
call option. EQR is currently trading at 82.75. Let’s look at buying the
October 18th expiration 65-strike call. October 18th options have 53 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 or ETF price.

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 If you limit the time value portion of an option to 1%, the stock price
only must 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 0.50 points (boxed in red). The
time value of 0.50 is less than 1% of the 82.75 stock price, so this strike
price qualifies under the 1% Rule.

Buy to Open the EQR October 18 65–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 the EQR stock price increases by 1% (boxed in green) at
option expiration, a 1.8% profit will be realized. This confirms the 1%
Rule of profiting with only a 1% increase in the stock price.

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 Buy to Open the EQR October 18 65–Strike Call

There is no limit on the profit potential of call option purchases if the

underlying stock continues to increase in price. If the EQR REIT price
increases by 10% between now and option expiration, the Call Option
Purchase Calculator shows that the 65-Strike Call will realize a 42.6% or
$778 profit (boxed in green).

On the other hand, if EQR is flat at 82.75 on option expiration, the 65- Strike
Call will only lose -2.7% or -$50. 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 EQR October 18 65-Strike Call at current

prices.

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 The next profit opportunity we will consider this week is in DRIP. DRIP is
the bear side of the Direxion Daily S&P Oil and Gas Exploration and
Production Bull and Bear 3X Shares ETFs. Drip seeks daily investment
results, before fees and expenses, of 300% of the inverse (or opposite) of
the performance of the SP Oil and Gas Exploration and Production Select
Industry Index. In short, if the S&P Oil and Gas Exploration and Production
goes down, DRIP should go up.

DRIP Monthly Chart

The monthly chart shows that DRIP has above the moving average line
for the last few months. By definition, that means the monthly trend in
DRIP is up.

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 DRIP Daily Chart

The daily chart shows that the overall trend in DRIP has been up since
the April low. Friday’s gap higher opening and bullish close point to a
further advance.

We are going to review a call option debit spread for DRIP.

Traders who want to use a more leveraged approach can buy DRIP
calls.

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 Buy to Open the DRIP September 20 90-Strike Call
Sell to Open the DRIP September 20 112-Strike Call

We can see from this call option spread analysis that if the DRIP ETF
price declines by -2.5%, remains flat, or increases in price when the
options expire, the spread will make a 57.1% or $800 profit. If DRIP
declines by 5% at option expiration, the spread will make 43.1% or $603.
If DRIP is down -7.5% when the options expire, we will make 22.4% or
$313.

The last profit opportunity we will consider this week is in EDZ. EDZ is
the Direxion Daily MSCI Emerging Markets Bear 3X Shares ETF. EDZ
seek daily investment results, before fees and expenses, of 300% of the
inverse (or opposite) of the price performance of the MSCI Emerging
Markets Index.

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 EDZ Weekly Chart

We’re looking at a weekly chart for EDZ instead of a monthly chart

because EDZ just started the current rally in April.

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 EDZ Daily Chart

The daily chart for EDZ features a couple of wide swings. Right now, the
direction is up. Friday’s bullish trading suggests a further advance.

We are going to review a Call Debit Spread trade for EDZ.

Traders who want a more leveraged approach can buy EDZ calls.

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 Buy to Open the EDZ October 18 42-Strike Call
Sell to Open the EDZ October 18 52-Strike Call

We can see from this call option spread analysis that if the EDZ ETF
price declines by -5%, stays where it is, or increases in price when the
options expire, the spread will make a 41.8% or $295 profit. If EDZ is
down -7.5% when the options expire, we will make 23.4% or $165.

Newsletter Summary
This week we recommended the following:

Buy NEM stock

Buy to Open the EQR October 18 65-Strike Call

Buy to Open the DRIP September 20 90-Strike Call

Sell to Open the DRIP September 20 112-Strike Call

Buy to Open the EDZ October 18 42-Strike Call

Sell to Open the EDZ October 18 52-Strike Call

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 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 listing of
Chuck’s 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.

Thank you Thank you for reading! Come back next week for
new profit opportunities!
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