Oct 18th, 2020

Edition
SPX Monthly Chart
The S&P price is above
the moving average
line, so the trend is
up. There could be a
pullback soon, so
we’re going to hedge a
bit. This week we will
review three bullish
trades and one bear
trade.

PYPL
The first profit opportunity we will review this week is a stock purchase in PYPL,
or PayPal Holdings, Inc. PayPal offers online payment solutions which allow
customers to pay and get paid, withdraw funds to their bank accounts and hold
balances in their PayPal accounts in various currencies. The PYPL payment
platforms include PayPal, PayPal Credit, Venmo, and Braintree products.

PYPL Monthly Chart

The monthly chart

shows that PYPL has
been very bullish since
this year’s low. There
are no signs of a peak in
the movement.
 PYPL Daily Chart
The daily chart shows that
PYPL has been in a steady
bull trend since the March
low. A rally to a new
record high appears to be
imminent.

We recommend buying
PYPL stock at current
price levels.

ITB
The next profit opportunity we will review this week is a call option purchase in
ITB, or the iShares U.S. Home Construction ETF.

ITB Monthly Chart

The monthly chart
shows that ITB has
been going almost
straight up since the
March low. A further
advance is expected.

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 The daily chart shows that ITB hit a new record high on Friday. A new record high
is a positive sign for the bulls.

ITB Daily Chart

We will first look at
selecting a call option strike
for purchasing an ITB call
option. ITB is currently
trading at 59.35. Let’s look
at buying the November 20th
expiration 50-strike call.
The November 20 options
expire in 33 days. We will
analyze this option using
the Optioneering Call
Option Purchase Calculator.

The Call Option Purchase Calculator will calculate the profit potential for a call option
purchase trade based on the price change in the underlying stock/ETF at option
expiration. In this example the price changes the calculator shows will be from a 12.5%
increase in the stock price to remaining flat at expiration.
We developed what we call the 1% Rule to help us select an option strike price. The 1%
rule says to limit the time value portion of the option to less than 1% of the stock
price. If you limit the time value portion of an option to 1%, the stock price only
has to move down 1% for the put to breakeven and start profiting.
The calculator will also calculate the time value portion of an option. With this option
purchase, the time value is 0.40 points (boxed in red). The time value of 0.40 is less
than 1% of the 59.35 ETF price, so this strike price qualifies under the 1% Rule.
The second row from
Buy to Open the ITB November 20 50-Strike Call bottom of the calculator
lists the dollar profit
potential. The bottom row
lists the percent return
profit potential. We can
see that if the ITB ETF
price increases by 1%
(boxed in green) at option
expiration, a 2% profit will
be realized. This confirms
the 1% Rule of profiting
with only a 1% increase in
the stock price.
There is no limit on the
profit potential of call Buy to Open the ITB November 20 50-Strike Call
option purchases if the
underlying stock
continues to increase in
price. If the ITB stock
price increases by 10%
between now and option
expiration, the Call
Option Purchase
Calculator shows that the
50-Strike Call will realize
a 56.8% or $554 profit
(boxed in green).
On the other hand, if ITB is flat at 59.35 on option expiration, the 50- Strike Call will
only lose -4.1% or -$40. If we bought an at the money or out of the money option and
the stock price was flat at option expiration it could result in a 100% loss.
Remember, if you purchase an at the money or out of the money strike call option and
the underlying stock/ETF is flat or down at option expiration, it could result in a 100%
loss for your option trade! Using the 1% Rule to select an option strike price will
increase your percentage of winning trades compared to trading at the money or out of
the money strike calls. This higher accuracy can make you a more successful trader.
We recommend buying the ITB November 20 50-Strike Call at current prices.

QLD
The next profit opportunity we will consider this week is in QLD, or the ProShares
Ultra QQQ. QLD seeks daily investment results, before fees and expenses, that
correspond to two times (2x) the daily performance of the NASDAQ-100 Index.

QLD Monthly Chart

The monthly chart shows

that QLD has been very
bullish since the March
low. The pullback from
last month’s high gives us
a buying opportunity.
 The daily chart shows that
QLD Daily Chart
QLD has a higher low
bottom at last month’s low.
Higher low bottoms point to
higher high tops. The next
upside target is above last
month’s high.
We are going to review a call
debit spread for QLD.
Traders who want a more
leveraged approach can buy
QLD calls.

Buy to Open the QLD November 20 85-Strike Call

Sell to Open the QLD November 20 95-Strike Call
We can see from this call
option spread analysis that
if the QLD ETF price declines
by -2.5%, remains flat, or
increases in price when the
options expire, the spread
will make a 55% or $355
profit. If QLD declines by -5%
at expiration, the profit will
be 29.3% or $189. If QLD is
down -7.5% at option
expiration, the trade will
lose -8.8% or -$57.

EVER
The last profit opportunity we will consider this week is in EVER, or EverQuote
Inc. EVER provides online marketplace for insurance shopping primarily in the
United States
 EVER Monthly Chart

The EVER stock price is

below the monthly
moving average line.
That means the trend is
down. A further
declined is expected.

EVER Daily Chart

The daily chart shows that
EVER declined sharply in July
and August. It’s been going
sideways since then.
Sideways trading in a bear
trend is usually followed by a
further decline.
We are going to review a put
debit spread for EVER.
Traders who want a more
leveraged approach can buy
EVER puts.

Buy to Open the EVER November 20 50-Strike Put

Sell to Open the EVER November 20 40-Strike Put
We can see from this put
option spread analysis that if
the EVER stock price
increases by 7.5%, remains
flat, or decreases in price
when the options expire, the
spread will make a 25% or
$200 profit.
This week we recommended the following:
Buy PYPL Stock
Buy to Open the ITB November 20 50-Strike Call
Buy to Open the QLD November 20 85-Strike Call
Sell to Open the QLD November 20 95-Strike Call
Buy to Open the EVER November 20 50-Strike Put
Sell to Open the EVER November 20 40-Strike Put

Note: Profit performance displayed in this newsletter does not include

commission cost.

Good Trading and

we’ll see you next
week!