Technology ETF Making New Highs

July 10th, 2020 Technology ETF Making New Highs Dear Reader, Yesterday, we looked at a Daily Price Chart of Zillow Group, Inc., noting the stock's OBV line is sloping up which validates the stock's bullish trend. For today's Trade of the Day we will be looking at a Daily Price chart for the Technology Select Sector SPDR ETF, symbol: XLK. Before breaking down XLK's daily price chart let's first review the investment objective of the ETF. The XLK ETF seeks investment results that, before expenses, correspond generally to the price and yield performance of publicly traded equity securities of companies in the Technology Select Sector Index. In seeking to track the performance of the index, the fund employs a replication strategy, which means that the fund typically invests in substantially all of the securities represented in the index in approximately the same proportions as the index. Now, let's begin to break down the Daily Price chart for XLK. Below is a Daily Price Chart with the price line displayed by an OHLC bar. The Daily Price chart above shows that the XLK ETF has been hitting new 52-Week Highs regularly since mid-June. Simply put, an ETF does not just continually hit a series of new 52-Week Highs unless it is in a very strong bullish trend. The Hughes Optioneering team looks for ETFs that are making a series of 52-Week Highs as this is a good indicator that the ETF is in a powerful uptrend. You see, after an ETF makes a series of two or more 52-Week Highs, the ETF typically continues its price uptrend and is a good candidate for a call option purchase. Our initial price target for the XLK ETF is 122.37 per share. 106.8% Profit Potential for XLK Option Now, since the XLK ETF is currently making a series of 52-Week Highs this means the ETF's bullish rally will likely continue. Let's use the Hughes Optioneering calculator to look at the potential returns for an XLK call option purchase. The Call Option Calculator will calculate the profit/loss potential for a call option trade based on the price change of the underlying stock/ETF at option expiration in this example from a flat XLK price to a 12.5% increase. The Optioneering Team uses the 1% Rule to select an option strike price with a higher percentage of winning trades. In the following XLK option example, we used the 1% Rule to select the XLK option strike price but out of fairness to our paid option service subscribers we don't list the strike price used in the profit/loss calculation. What are Smart Options Strategies? Learn More about these Smart Strategies Now! Trade with Higher Accuracy When you use the 1% Rule to select an XLK in-the-money option strike price, the XLK ETF only has to increase 1% for the option to breakeven and start profiting! Remember, if you purchase an at-the-money or out-of-the-money call option and the underlying ETF closes flat at option expiration it will result in a 100% loss for your option trade! In this example, if the XLK ETF is flat at 108.11 at option expiration, it will only result in a 11.4% loss for the XLK option compared to a 100% loss for an at-the-money or out-of-the-money call option. Using the 1% Rule to select an option strike price will result in a higher percentage of winning trades compared to at-the-money or out-of-the-money call options. This higher accuracy can give you the discipline needed to become a successful option trader and can help avoid 100% losses when trading options. The goal of this example is to demonstrate the powerful profit potential available from trading options compared to ETFs. The prices and returns represented below were calculated based on the current ETF and option pricing for XLK on 7/9/2020 before commissions. When you purchase a call option, there is no limit on the profit potential of the call if the underlying ETF continues to move up in price. For this specific call option, the calculator analysis below reveals if the XLK ETF increases 5.0% at option expiration to 113.52 (circled), the call option would make 47.7% before commission. If the XLK ETF increases 10.0% at option expiration to 118.92 (circled), the call option would make 106.8% before commission and outperform the stock return nearly 11 to 1. And if the XLK ETF increases to our initial price target of 122.37 at option expiration the call option would make 144.5% before commission. The leverage provided by call options allows you to maximize potential returns on bullish ETFs. The Hughes Optioneering Team is here to help you identify winning trades just like this one. Interested in accessing the Optioneering Calculators? Join one of Chuck's Trading Services for unlimited access! The Optioneering Team has option calculators for six different option strategies that allow you to calculate the profit potential for an option trade before you take the trade. Chuck's Inner Circle Trading Service Skip the headaches and years of learning and start getting Chuck's hand-picked trades today by signing up for Chuck's Inner Circle Trading Service. Now is your best opportunity to join us. Become a member today. Just call Brad in my office at 1-866-661-5664 or 1-310-647-5664 . Wishing You the Best in Investing Success, Chuck Hughes Editor, Trade of The Day Have any questions? Email us at dailytrade@chuckstod.com Market Volatility Profit Secrets Don't Forget to Download this Ebook Unsubscribe Investment Software Inc 22C New Leicester Hwy #117 © 2020 Tradewins Publishing. All rights reserved. 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