August 23rd , 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.

XEL
The first profit opportunity we will review today is a stock purchase in XEL, or
Xcel Energy Inc. XEL is a public utility company that is engaged in the
generation, transmission and distribution of electricity and the transportation,
storage and distribution of natural gas.

XEL Monthly Chart

The monthly chart

shows that XEL has been
in a bull trend since the
chart started in 2012.
 XEL Daily Chart
The daily chart for XEL is
also bullish. XEL hit a new
record high this month.
The pullback from this
month’s high gives us a
buying opportunity.

We recommend buying
XEL stock at current
price levels. The XEL
dividend yield is 2.5%.

WM
The next profit opportunity we will review this week is a call purchase in WM, or
Waste Management, Inc. WM is a leading provider of integrated environmental
solutions in North America
WM Monthly Chart

The monthly chart

shows that WM has
been in an overall bull
trend since 2012.
After a deep pullback
early this year, the
bulls are back in
control.
 The daily chart for WM has a new bullish pattern of higher highs and higher lows
since the March low. A further advance is expected.

WM Daily Chart
We will first look at selecting
a call option strike for
purchasing a WM call option.
WM is currently trading at
111.16. Let’s look at buying
the October 16 expiration
100-strike call. October 16th
options have 53 days to
expiration. 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 0.39 points (boxed in red). The time value of 0.39 is less
than 1% of the 111.16 stock price, so this strike price qualifies under the 1% Rule.
The second row from
Buy to Open the WM October 16 100-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 WM stock
price increases by 1%
(boxed in green), a 6.2%
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 WM October 16 100-Strike Call
option purchases if the
underlying stock
continues to increase in
price. If the WM stock
price increases by 10%
between now and option
expiration, the Call
Option Purchase
Calculator shows that
the 100-Strike Call will
realize a 92.9% or $1073
profit (boxed in green).
On the other hand, if WM is flat at 111.16 at option expiration, the 100-Strike Call will
only lose -3.4% or -$39. 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 WM October 16 100-Strike Call at current prices.

ICPT
The next profit opportunity we will consider this week is in ICPT, or Intercept
Pharmaceuticals Inc. ICPT is a biopharmaceutical company that’s focused on the
development and commercialization of therapeutics to treat chronic liver disease.

ICPT Monthly Chart

The monthly chart shows

that ICPT has been in a
bear trend since the 2014
high.
 ICPT Daily Chart

The daily chart for ICPT has a

bearish pattern of lower highs
and lower lows since the
January high. A further
decline is expected.
We are going to review a put
debit spread for ICPT.
Traders who want a more
leveraged approach can buy
ICPT puts.

Buy to Open the ICPT October 16 60-Strike Put

Sell to Open the ICPT October 16 50-Strike Put We can see from this put
option spread analysis that
if the ICPT stock price
increases by 2.5%, remains
flat, or decreases in price
when the options expire, the
spread will make a 43.9% or
$305 profit. If the ICPT stock
price is up 5% when the
options expire, the profit
will be 35% or $243. If the
ICPT stock price is up 7.5%
at option expiration, we will
make 0.3% or $2.

NVTA
The last profit opportunity we will consider this week is in NVTA, or Invitae
Corporation. NVTA is engaged in genetic diagnostics for hereditary disorders
which include breast, colon and pancreatic cancer.
 NVTA Monthly Chart

The monthly chart

shows that NVTA just
rallied to a new record
high. A new record high
is a positive sign for the
bulls.

NVTA Daily Chart

The daily chart shows that

NVTA hit the new record
high on Friday. A further
advance is expected.
We are going to review a Call
Debit Spread trade for NVTA.
Traders who want a more
leveraged approach can buy
NVTA calls.

Buy to Open NVTA October 16 25-Strike Call

We can see from this call Sell to Open NVTA October 16 35-Strike Call
option spread analysis that if
the NVTA stock price
remains flat or increases in
price when the options
expire, the spread will make
a 41.8% or $295 profit. The
profits slide down from
there. If NVTA is down -7.5%
when the options expire, we
will make a 9.2% or $65
profit.
This week we recommended the following:
Buy XEL Stock
Buy to Open the WM October 16 100-Strike Call
Buy to Open the ICPT October 16 60-Strike Put
Sell to Open the ICPT October 16 50-Strike Put
Buy to Open the NVTA October 16 25-Strike Call
Sell to Open the NVTA October 16 35-Strike Call

Note: Profit performance displayed in this newsletter does not include

commission cost.

Good Trading and

we’ll see you next
week!