| NVAX on Power-Packed 'Buy' Signal |
Dear Reader,
Yesterday, we looked at a daily price chart with the 50-Day EMA and 100-Day EMA for Equinix, Inc. noting that the stock's 50-Day EMA was above the 100-Day EMA.
For today's Trade of the Day e-letter we will be looking at a monthly chart for Novavax, Inc. stock symbol: NVAX.
Before breaking down NVAX's monthly chart let's first review what products and services the company offers.
Novavax, Inc., together with its subsidiary, Novavax AB, a late-stage biotechnology company, focuses on the discovery, development, and commercialization of vaccines to prevent serious infectious diseases. The company's lead vaccine candidates include ResVax, a respiratory syncytial virus (RSV) fusion (F) protein nanoparticle vaccine candidate that in Phase III clinical trial to protect infants from RSV disease through maternal immunization. Now, let's begin to break down the monthly chart for NVAX stock.
Below is a 10-Month Simple Moving Average chart for Novavax, Inc.
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As the chart shows, in January, the NVAX 1-Month Price, crossed above the 10-Month simple moving average (SMA).
This crossover indicated the buying pressure for NVAX 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 NVAX is 49.00 per share.
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| | | | Profit if NVAX Is Down 10%
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Now, since NVAX's 1-Month Price is trading above the 10-Month SMA and the stock will likely rally from here, let's use the Optioneering calculator to look at the potential returns for a NVAX covered call trade. Covered calls are also known as buy writes.
The Buy Write Calculator will calculate the profit/loss potential for a covered call trade based on the price change of the underlying stock/ETF at option expiration in this example from a 10% increase to a 10% decrease in NVAX stock at option expiration.
The goal of this example is to demonstrate the 'built in' profit potential for covered calls and the ability of covered calls 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 price used in the profit/loss calculation.
The prices and returns represented below were calculated based on the current stock and option pricing for NVAX on 5/28/2020 before commissions.
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57.9% Built in Profit Potential
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For this covered call, the calculator analysis below reveals the cost or the breakeven price is $2,786 (circled). The maximum risk for a covered call is the cost of the covered call.
The analysis reveals that if NVAX is flat at 44.76 or up at all at expiration the covered call will realize a $1,614 profit and a 57.9% return (circled).
If NVAX decreases 5% at option expiration, the covered call will realize a $1,466.20 profit and a 52.6% return.
And if NVAX decreases 10% at option expiration, the covered call will realize a $1,242.40 profit and a 44.6% return.
Due to option pricing characteristics, this covered call has a 'built in' 57.9% profit potential when the trade was initiated.
Covered call trades can result in a higher percentage of winning trades compared to a directional stock 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 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 Weekly Option Alert 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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