and The Candlestick Forum
Chart for ALBO
Over the next 13 weeks, Albireo Pharma has on average historically fallen by 12.6% based on the past 11 years of stock performance.
Albireo Pharma has fallen lower by an average 12.6% in 7 of those 11 years over the subsequent 13 week period, corresponding to a historical probability of 63%
The holding period that leads to the greatest annualized return for Albireo Pharma, based on historical prices, is 7 weeks. Should Albireo Pharma stock move in the future similarly to its average historical movement over this duration, an annualized return of 24% could result.
Chart for CRC
Over the next 13 weeks, California Resources Corp has on average historically fallen by 36.7% based on the past 3 years of stock performance.
California Resources Corp has fallen lower by an average 36.7% in 3 of those 3 years over the subsequent 13 week period, corresponding to a historical probability of 100%
The holding period that leads to the greatest annualized return for California Resources Corp, based on historical prices, is 33 weeks. Should California Resources Corp stock move in the future similarly to its average historical movement over this duration, an annualized return of 64% could result.
Chart for CSII
Over the next 13 weeks, Cardiovascular Systems Inc. has on average historically risen by 660% based on the past 14 years of stock performance.
Cardiovascular Systems Inc. has risen higher by an average 660% in 7 of those 14 years over the subsequent 13 week period, corresponding to a historical probability of 50%
The holding period that leads to the greatest annualized return for Cardiovascular Systems Inc., based on historical prices, is 1 week. Should Cardiovascular Systems Inc. stock move in the future similarly to its average historical movement over this duration, an annualized return of 38189% could result.
Chart for WWE
Over the next 13 weeks, World Wrestling Entertainment Inc. has on average historically risen by 4.6% based on the past 18 years of stock performance.
World Wrestling Entertainment Inc. has risen higher by an average 4.6% in 11 of those 18 years over the subsequent 13 week period, corresponding to a historical probability of 61%
The holding period that leads to the greatest annualized return for World Wrestling Entertainment Inc., based on historical prices, is 3 weeks. Should World Wrestling Entertainment Inc. stock move in the future similarly to its average historical movement over this duration, an annualized return of 44% could result.
Continue to be careful. Although the indexes are trading positive, both the Dow and S&P 500 just touched the T-line before backing off. The NASDAQ, although trading higher, is trading below where it opened. Overall, this does not project new bullish strength in the markets right now. It will be important to see how they close the markets today. A bullish reversal would require a close near the top end of the trading range in the market indexes.
Using Options as Shares of Stock
By Bill Johnson
Options are powerful. Options are versatile. But some stock traders are convinced that options are risky, and they continue to trade stock that puts them at a disadvantage. For this article, let’s take a look at how options can be used as shares of stock.
To master options trading, you must understand that it’s the option’s time value that makes it an option. If an option is made up entirely of intrinsic value and now time value, it’s not an option – it’s stock. For example, let’s say one trader buys shares of stock trading for $110, but another buys a $100 call trading for $10. That call’s price is entirely intrinsic value – the difference between the $110 stock price and the $100 strike. In options trading terms, this option is trading at parity, which means it’s equivalent to shares of stock.
To see why, pick any stock price above the $100 strike, and the $100 call owner and stock owner will perform identically. If the stock is $115, the stock buyer makes $5 and so does the call buyer. If the stock is $130, both traders make $20. On the other hand, if the stock price drops to the $100 strike, the options trader and stock trader both lose $10 – again, neither trader better or worse off than the other.
However, if the stock price falls below the $100 strike, that relationship changes, and the options trader will outperform the stock buyer. The options trader can’t lose any more than the initial $10 paid, but the stock buyer continues to lose. In other words, if the stock price falls below the $100 strike, you’re better off holding the option. By holding the shares of stock, you can’t do better – but you could do worse. There is a benefit in holding the option, and that’s why you’ll usually pay a time value. It’s the price the option’s buyer pays for the protection of losses below the strike.
In the real world of trading, it’s rare to see an option trading for parity, except when the option is about to expire. However, by choosing an option strike that’s deep in the money, you can greatly reduce the time value and therefore make the option behave nearly identical to the shares of stock – but with big benefits.
For instance, on June 25, Home Depot (HD) closed at $196.38. If you wanted to buy 100 shares, it would cost nearly $20,000. However, the January 2019 $150 call with 207 days to expiration was trading for $48.38. The breakeven price $198.38 – exactly $2 greater than the current stock price. That additional $2 is the time value, which provides the insurance against losses should the stock’s price fall below the $150 strike at expiration.
Pick any stock price above the $150 strike, and the option buyer just gives up the $2 time value compared to the stock trader. If the stock price falls below $148, the option buyer outperforms the stock buyer. In the chart below, you can see there’s very little difference between the red line (stock) and the blue line ($150 call) for all stock prices above $148. The two lines nearly overlap and are only separated by the $2 time value. However, below $148, the stock trader continues to take losses whereas the options trader’s loss is limited to the $48.38 premium paid:
Now consider the benefits. By paying $48.38 for the call, you’re spending less than 25% of the stock’s price. The best leverage you can get as a stock trader is 25% – and but you must close the position by the end of the day. The options trader, however, may continue to hold. Further, the options trader will never pay margin interest or receive a maintenance call. The options trader has more money to diversify into other trades – or average into positions across time. These are all things the stock trader cannot do as efficiently, but it only cost the options trader the $2 time value.
Options don’t have to be options. By understanding the art and science of options trading, you can make options behave like shares of stock– but for far less cost and much bigger advantages.
Good Investing!
Bill Johnson, Steve Bigalow
and The Candlestick Forum Team
P.S. Bill Johnson’s Alpha Trader Options Course takes you from the very beginning, step-by-step, through an exciting journey into the world of options. At the end, you’ll have the necessary knowledge and confidence to start investing and hedging with options. In addition, you’ll have a rock-solid foundation from which to continue your options education.
Trading in the Stock Market, Trading Options, Trading Futures, and Options on Futures, involves substantial risk of loss and is not suitable for all investors. Past Performance is not indicative of future results. CandlestickForum.com, Candlestick-Trading-Forum.com, StephenBigalow.com, and Candlestick Forum LLC do not recommend or endorse any specific trading system or method. We recommend that you research all trading systems, methods and market strategies thoroughly. Full Disclaimer here
Be careful, although the markets are trading positive Today, they are not showing any great reversal signals. There are numerous stocks still trading lower, especially after bearish kicker signals. Stay predominantly short until you see bullish confirmation/bullish reversal signals. With all the indexes trading below the T-line, the downtrend should remain in progress.
The weakness in Friday’s trading brought all the indexes back below the T-line. This was a viable indication the Bears are starting to take control. The Dow, although traded higher on Friday, indicated the 50 day moving average was going to be acting as a resistance level, making the prospects of the next target the 200 day moving average, which is where the Dow is trading right now. The S&P 500 has almost touched the 50 day moving average today. The short positions are obviously working well. Adding new short positions after the market has moved down this strong should probably not be executed until near the end of the day if the market indexes don’t show a bounce.
Chart for CRC
Over the next 13 weeks, California Resources Corp has on average historically fallen by 36.7% based on the past 3 years of stock performance.
California Resources Corp has fallen lower by an average 36.7% in 3 of those 3 years over the subsequent 13 week period, corresponding to a historical probability of 100%
The holding period that leads to the greatest annualized return for California Resources Corp, based on historical prices, is 52 weeks. Should California Resources Corp stock move in the future similarly to its average historical movement over this duration, an annualized return of 56% could result.
Chart for FTI
Over the next 13 weeks, FMC Tech has on average historically risen by 89% based on the past 1 years of stock performance.
FMC Tech has risen higher by an average 89% in 1 of those 1 years over the subsequent 13 week period, corresponding to a historical probability of 100%
The holding period that leads to the greatest annualized return for FMC Tech, based on historical prices, is 2 weeks. Should FMC Tech stock move in the future similarly to its average historical movement over this duration, an annualized return of 1064% could result.
Chart for KMX
Over the next 13 weeks, CarMax has on average historically risen by 5.1% based on the past 21 years of stock performance.
CarMax has risen higher by an average 5.1% in 11 of those 21 years over the subsequent 13 week period, corresponding to a historical probability of 52%
The holding period that leads to the greatest annualized return for CarMax, based on historical prices, is 3 weeks. Should CarMax stock move in the future similarly to its average historical movement over this duration, an annualized return of 33% could result.
Chart for WLL
Over the next 13 weeks, Whiting Petroleum Corp. has on average historically fallen by 4.5% based on the past 14 years of stock performance.
Whiting Petroleum Corp. has fallen lower by an average 4.5% in 6 of those 14 years over the subsequent 13 week period, corresponding to a historical probability of 42%
The holding period that leads to the greatest annualized return for Whiting Petroleum Corp., based on historical prices, is 51 weeks. Should Whiting Petroleum Corp. stock move in the future similarly to its average historical movement over this duration, an annualized return of 18% could result.
The Dow is currently trading below the 50 day moving average while the NASDAQ has use the T-line once again as a support level. These market conditions make the analysis of each individual stock chart the relevant analysis. Continue to stay predominantly long and have a few short positions in the portfolio.
The Dow is currently trading below the 50 day moving average while the NASDAQ has use the T-line once again as a support level. These market conditions make the analysis of each individual stock chart the relevant analysis. Continue to stay predominantly long and have a few short positions in the portfolio.
June 29th Daily Market Comments
Today’s positive trading is strong enough to bring the Dow and the S&P 500 back up through the T-line after forming piercing signals yesterday. The transportation index is forming a good MorningStar signal at the 200 day moving average. The NASDAQ has gapped up after a piercing signal off the 50 day moving average and is currently nudging the T-line. A bullish reversal still requires a close near the top end of today’s trading range in the indexes. Numerous short positions should of been covered on the bullish trading/gap ups after a candlestick reversal signals yesterday. Committing to heavier long positioning should not take place until Today’s bullish trading confirms.