| ABMD is Running with the Bulls |
Dear Reader,
Yesterday, we looked at a Daily Price Chart of ACM Research, Inc. noting that the stock has been making a series of higher highs and higher lows.
For today's Trade of the Day e-letter we will be looking at a monthly chart for ABIOMED, Inc. stock symbol: ABMD.
Before breaking down ABMD's monthly chart let's first review what products and services the company offers.
Abiomed, Inc. engages in the research, development, and sale of medical devices to assist or replace the pumping function of the failing heart. It also provides a continuum of care to heart failure patients. The company offers Impella 2.5 catheter, a percutaneous micro heart pump with integrated motor and sensors for use in interventional cardiology; and Impella CP, a device used by interventional cardiologists to support patients in the cath lab and cardiac surgeons in the heart surgery suite.
Now, let's begin to break down the monthly chart for ABMD stock.
Below is a 10-Month Simple Moving Average chart for ABIOMED, Inc.
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As the chart shows, in April, the ABMD 1-Month Price, crossed above the 10-Month simple moving average (SMA).
This crossover indicated the buying pressure for ABMD stock exceeded the selling pressure. For this kind of crossover to occur, a stock has to be in a strong bullish uptrend.
Now, as you can see, the 1-Month Price is still above the 10-Month SMA. That means the bullish trend is still in play!
As long as the 1-Month price remains above the 10-Month SMA, the stock is more likely to keep trading at new highs in the coming days and weeks.
We'll be keeping our eye on this stock as it continues to trend upward, so we'll know the moment the market conditions shift and the stock begins to come back down.
Our initial price target for ABMD is 330.00 per share.
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| | Profit if ABMD is Up, Down or Flat
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Now, since ABMD's Monthly Price is currently trading above the 10-Month SMA and the stock will likely rally from here, let's use the Hughes Optioneering calculator to look at the potential returns for an ABMD call option spread.
The Call Option Spread Calculator will calculate the profit/loss potential for a call option spread based on the price change of the underlying stock/ETF at option expiration in this example from a 10.0% increase to a 10.0% decrease in ABMD at option expiration.
The goal of this example is to demonstrate the 'built in' profit potential for option spreads and the ability of spreads to profit if the underlying stock is up, down or flat at option expiration. Out of fairness to our paid option service subscribers we don't list the option strike prices used in the profit/loss calculation.
The prices and returns represented below were calculated based on the current stock and option pricing for ABMD on 7/29/2020 before commissions.
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Built in Profit Potential
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For this option spread, the calculator analysis below reveals the cost of the spread is $620 (circled). The maximum risk for an option spread is the cost of the spread.
The analysis reveals that if ABMD is flat or up at all at expiration the spread will realize a 61.3% return (circled).
And if ABMD decreases 10.0% at option expiration, the option spread would make a 48.2% return (circled).
Due to option pricing characteristics, this option spread has a 'built in' 61.3% profit potential when the trade was initiated.
Option spread trades can result in a higher percentage of winning trades compared to a directional option trade if you can profit when the underlying stock/ETF is up, down or flat.
A higher percentage of winning trades can give you the discipline needed to become a successful trader.
The Hughes Optioneering Team is here to help you identify winning trades just like this one.
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| | You can start receiving hand-picked trades from Chuck today!
Chuck is offering special pricing for his Inner Circle Trading Service for Trade of the Day subscribers.
Just call Brad at 1-866-661-5664 or 1-310-647-5664 to join and use the code "Optioneering VIP" to receive special pricing! |
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Wishing You the Best in Investing Success,
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| | Chuck Hughes Editor, Trade of The Day
Have any questions? Email us at dailytrade@chuckstod.com |
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