| May 19th, 2021 Profit if GES is Down 10.0% Dear Reader, Yesterday, we looked at a Daily Price Chart for Foot Locker, Inc. noting that the stock’s 12/26 Day MACD line is above the 9-Day EMA signaling a ‘Buy’. For today’s Trade of the Day e-letter we will be looking at a daily price chart for Guess?, Inc. stock symbol: GES. Before breaking down GES’s daily chart let’s first review what products and services the company offers. Guess?, Inc. designs, markets, distributes, and licenses lifestyle collections of apparel and accessories for men, women, and children. It operates through five segments: Americas Retail, Americas Wholesale, Europe, Asia, and Licensing. The company's clothing collection includes jeans, pants, skirts, dresses, shorts, blouses, shirts, jackets, knitwear, and intimate apparel. It also grants licenses to design, manufacture, and distribute various products that complement its apparel lines, such as eyewear, watches, handbags, footwear, kids' and infants' apparel, outerwear, fragrance, jewelry, and other fashion accessories, Now, let’s begin to break down the Daily Price chart for GES stock. Below is a Daily Price chart with the 50-Day EMA and 100-Day EMA for GES. 
50-Day EMA and 100-Day EMA ‘Buy’ Signal The 50-Day Exponential Moving Average (EMA) and 100-Day EMA are moving average indicator lines that can provide buy and sell signals when used together. When the shorter-term 50-Day EMA crosses above or below the longer-term 100-Day EMA, this provides either a buy or sell signal depending on which direction the stock price is moving. - 50-Day EMA line Above 100-Day EMA = Price Uptrend = Buy signal
- 50 Day EMA line Below 100-Day EMA = Price Downtrend = Sell signal
When the 50-Day EMA (blue line) crosses above the 100-Day EMA (red line) this indicates that the stock’s buying pressure has begun to outweigh the selling pressure signaling a ‘buy’ signal. When the 50-Day EMA crosses below the 100-Day EMA this indicates that the selling pressure has begun to outweigh the buying pressure signaling a ‘sell’ signal. Buy GES Stock As the chart shows, on September 2nd, 2020, the GES 50-Day EMA, crossed above the 100-Day EMA. This crossover indicated the buying pressure for GES stock exceeded the selling pressure. For this kind of crossover to occur, a stock has to be in a strong bullish trend. Now, as you can see, the 50-Day EMA is still above the 100-Day EMA meaning the ‘buy’ signal is still in play. As long as the 50-Day EMA remains above the 100-Day EMA, the stock is more likely to keep trading at new highs and should be purchased. Our initial price target for GES stock is 32.25 per share. |
| Profit if GES Is Down 10% Now, since GES’s 50-Day EMA is above the 100-Day EMA and will likely rally from here, let’s use the Optioneering calculator to look at the potential returns for a GES covered call trade. Covered calls are also known as buy writes. The Buy Write Calculator will calculate the profit/loss potential for a covered call trade based on the price change of the underlying stock/ETF at option expiration in this example from a 10.0% increase to a 10.0% decrease in GES stock at option expiration. The goal of this example is to demonstrate the ‘built in’ profit potential for covered calls and the ability of covered calls to profit if the underlying stock is up, down or flat at option expiration. Out of fairness to our paid option service subscribers we don’t list the option strike price used in the profit/loss calculation. The prices and returns represented below were calculated based on the current stock and option pricing for GES on 5/18/2021 before commissions. Built in Profit Potential For this covered call, the calculator analysis below reveals the cost or the breakeven price is $2,387 (circled). The maximum risk for a covered call is the cost of the covered call. The analysis reveals that if GES is flat at 29.32 at expiration the covered call will realize a $545.00 profit and a 22.8% return (circled). If GES increases at all by option expiration, the covered call will realize a $613.00 profit and a 25.7% return. And if GES decreases 10.0% at option expiration, the covered call will realize a $251.80 profit and a 10.5% return. Due to option pricing characteristics, this covered call has a ‘built in’ 22.8% profit potential when the trade was initiated. Covered call trades can result in a higher percentage of winning trades compared to a directional stock trade if you can profit when the underlying stock/ETF is up, down or flat. A higher percentage of winning trades can give you the discipline needed to become a successful trader. The Optioneering Team is here to help you identify winning trades 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. Special Offer for TOD Members! Do you want to start receiving hand-picked trades from 10-Time Trading Champion, Chuck Hughes? As a Trade of the Day subscriber, Chuck is offering you a special discount on his Weekly Option Alert Trading Service. Just call Brad at 1-866-661-5664 or 1-310-647-5664 to join and use the code "Optioneering VIP" to receive special pricing! Wishing You the Best in Investing Success, 
Chuck Hughes Editor, Trade of the Day Have any questions? Email us at dailytrade@chuckstod.com |
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