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| On Friday, we looked at a Daily Price Chart of  July 29th, 2024 Real Estate ETF Zooms Higher! Dear Reader, On Friday, we looked at a Daily Price Chart of J.P. Morgan Chase & Co., noting that JPM's OBV line was sloping up, validating the stock's recent bullish trend. For today's Trade of the Day we will be looking at an On Balance Volume chart for the Real Estate Select Sector SPDR ETF, symbol: XLRE. Before breaking down XLRE's OBV chart let's first review the investment objective of the fund. The Real Estate Select Sector SPDR Fund seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Real Estate Select Sector Index. Confirming a Price Uptrend with OBV The XLRE daily price chart below shows that XLRE is in a price uptrend as the current price is above the price XLRE traded at six months ago (circled). The On Balance Volume chart is below the daily chart. On Balance Volume measures volume flow with a single Easy-to-Read Line. Volume flow precedes price movement and helps sustain the price uptrend. When an ETF closes up, volume is added to the line. When an ETF closes down, volume is subtracted from the line. A cumulative total of these additions and subtractions form the OBV line. On Balance Volume Indicator ● When Close is Up, Volume is Added ● When Close is Down, Volume is Subtracted ● A Cumulative Total of Additions and Subtractions form the OBV Line Volume flow precedes price and is the key to measuring the validity and sustainability of a price trend. We can see from the OBV chart below that the On Balance Volume line for XLRE is sloping up. An up-sloping line indicates that the volume is heavier on up days and buying pressure is exceeding selling pressure. Buying pressure must continue to exceed selling pressure in order to sustain a price uptrend. So, On Balance Volume is a simple indicator to use that confirms the price uptrend and its sustainability. The numerical value of the On Balance Volume line is not important. We simply want to see an up-sloping line to confirm a price uptrend.  Confirmed 'Buy' Signal for XLRE Since XLRE's OBV line is sloping up, the most likely future price movement for XLRE is up, making XLRE a good candidate for a share purchase or a call option spread. Let's use the Hughes Optioneering calculator to look at the potential returns for an XLRE debit spread. 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 XLRE 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 XLRE option example, we used the 1% Rule to select the XLRE 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. Trade with Higher Accuracy When you use the 1% Rule to select an XLRE in-the-money option strike price, XLRE 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 XLRE shares are flat at 40.99 at option expiration, it will only result in a 5.7% loss for the XLRE 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 can 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 XLRE on 7/29/2024 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 XLRE increases 5.0% at option expiration to 43.04 (circled), the call option would make 42.8% before commission. If XLRE stock increases 10.0% at option expiration to 45.09 (circled), the call option would make 91.2% before commission and outperform the ETF return more than 9 to 1*. 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 profit opportunities 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. Check out Chuck's PRO Trading Service! I don't want you to miss a single opportunity to potentially reach your goals. That's why I want to share this video I made about my PRO Trading Service. I want you to follow in my footsteps for the opportunity to succeed beyond your wildest dreams, so please call my office at (737) 292-4425 and get started today! Wishing You the Best in Investing Success,  Chuck Hughes Editor, Trade of the Day Have any questions? Email us at dailytrade@chuckstod.com *Trading incurs risk and some people lose money trading.  See Related ArticlesJ.P. Morgan Chase Stock Surges TOD Winner: Camden Property Trust Financial ETF Breaks to New Highs: XLF Bullish Pattern Detected for KKR  © 2024 Tradewins Publishing. All rights reserved. | Privacy Policy | Terms and Conditions | Contact Us If you didn't create an account using this email address, please ignore this email or unsubscribe using the link below. To ensure delivery of this email to your inbox and to enable images to load in future mailings, please add todaystrade@chuckstod.com to your e-mail address book or safe senders list. DISCLAIMER: Auto-trading, or any broker or advisor-directed type of trading, is not supported or endorsed by Legacy Publishing LLC. For additional information on auto-trading, you may visit the SEC's website: All About Auto-Trading. The information provided by the Legacy Publishing LLC ("Legacy") Trading Services, newsletters and educational publications ("Services") is not customized or personalized to any particular risk profile or tolerance. Nor is the information published by Legacy a customized or personalized recommendation to buy, sell, hold, or invest in particular financial products. Past performance is not necessarily indicative of future results. Please note that results may not be typical and can vary from person to person. There are inherent risks involved with investing in the stock and options market, including the loss of your investment. Any investment is at your own risk. You should only trade or invest your "risk capital" – money you can afford to lose. | |||
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