Options for stock investors. A better way to trade.

July 26th Metal to Move Trade Alert XME S&P Metal and Mining ETF – BUY XME January 33 Call @ 5.25 or better

New Trade Alert for S&P Metal and Mining ETF

Buy XME January $33 Call @$5.25 or less

 


Risk Rating: 3.0     (1 = lowest   5 = highest)

Above Break Even Probability: 46%

Max Loss Probability: 26%


 

Profit Mining in Mashed Metals

 

Bull Market is alive and well…

 
Stock surge has left behind some sagging sectors that have a ton of upside potential. 
Tech has led and the S&P 500 is now within striking distance of the January ALL TIME HIGHS once again.
 
A new Bullish catalyst could provide the spark for some now that the Dollar may have topped out.
 
The KEY REVERSAL top with new Dollar Index one year highs and a lower weekly close can be the end to 2018 firmness in the Greenback.
 
The Dollar power in 2018 was a profit taking bounce from a sharp 2017 nearly straight down decline. 
 
A weaker Dollar helps the markets in so many ways and this is the first presidential administration to admit OUTLOUD that is their goal.

 

 

 

 

 
The Metal and Mining XME exchange traded fund is essentially unchanged in 2017 compared to the S&P itself plus 5%. 

XME is sideways from $33 to $39 in 2018.  Trade is back above the $36 midpoint support showing strength.  

 

 

 

An upside range breakout targets $45 which is another 20% above the current price.

 

A stock substitution strategy using options ties up less capital and has absolutely limited risk to the premium paid. An option instead of buying the shares also has greater staying power for long term trend development.

An In-The-Money option gives you the right to be long the shares from a lower strike price and costs much less than the stock itself.

The Options Way: Unlimited Upside Potential with Limited Risk.

A Metal and Mining ETF long call option can provide the staying power in a potential bullish trend extension.  More importantly, the maximum risk is the premium paid.

One major advantage of using long options instead of buying or selling shares is putting up much less money to control 100 shares — that’s the power of leverage.

Choosing an option can sometimes be a daunting task with all of the choices and expiration months.  Simply put, traders want to buy a high probability option that has enough time to be right.

The option strike price is the level at which you have the right to buy without any obligation to do so.  In reality, you rarely convert the option into shares. Simply sell the option you bought to exit the trade for gain or loss.  

There are two rules options traders need to follow to be successful.

Rule One:  Choose an option with 70%-plus probability.  The Delta is a measurement of how well the option reacts to movement in the underlying security.   It is also important to buy options that payoff from only a modest price move. 

There is no need to ONLY make money on the all but infrequent long shot price explosions.

Good Options can profit from only modest directional moves.

Any trade has a fifty/fifty chance of success.  Buying options ITM options increase that probability.  That Delta also approximates the odds that the option will be In The Money at expiration.

Buying better options are more expensive, but they are worth it — the chances of success are mathematically superior to buying cheap, long shot Out Of The Money lottery tickets that rarely ever pay off.  
 
With XME trading at $37.00 for example, an In The Money $33.00 strike option currently has $4.00 in real or intrinsic value.  The remainder of any premium is the time value of the option.

Rule Two: Buy more time until expiration than you may need – even if the move occurs in the next few weeks.  Time is an investor’s greatest asset when you have completely limited the exposure risks. 

Traders often buy too little time for the trade to develop.  Nothing is more frustrating than being right but only after the option has expired premature to the market move.

  

Trade Setup: I recommend the XME January $33.00 Call at $5.25 or less. A loss of half of the option premium could trigger an exit for more conservative traders.

The $33 strike is an important support point not traded there since March. 

An option play also has staying power of six months of time with the ability to ride through Ups and Downs that would force most stock traders out of the position.

This option also behaves much like the underlying stock with a much less money tied up in the investment. The option Delta is 76%.

The maximum loss is limited to the $525 or less paid per option contract. A stop loss could be placed at half of the premium paid to lessen dollar exposure.

 

 

The upside, on the other hand, is unlimited.

The XME option trade break even is $38.25 at expiration ($33.00 strike plus $5.25 or less option premium). That is just over $1 above the current price.

 

 

If shares just get to the $45 target level, the 2014 peak, the option would be worth $12.00 for a 100%+ return on investment.

 

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