Strong 'Buy' for U.S. Real Estate ETF

May 3^rd, 2021

Strong ‘Buy’ for U.S. Real Estate ETF

Dear Reader,

On Friday, we looked at a Daily Price Chart of the iShares U.S. Financials ETF, noting that the ETF has been making a series of 52-Week Highs.

For today’s Trade of the Day e-letter we will be looking at a monthly chart for the iShares U.S. Real Estate ETF, symbol: IYR.

Before breaking down ’s monthly chart let’s first review the investment objective of the ETF.

The IYR ETF seeks to track the investment results of the Dow Jones U.S. Real Estate Capped Index. The fund seeks to track the investment results of the Dow Jones U.S. Real Estate Capped Index, which measures the performance of the real estate sector of the U.S. equity market.

Now, let’s begin to break down the monthly chart for the IYR ETF.

Below is a 10-Month Simple Moving Average chart for IYR.

Buy the IYR ETF

As the chart shows, in November 2020, the IYR 1-Month Price, crossed above the 10-Month simple moving average (SMA).

This crossover indicated the buying pressure for IYR exceeded the selling pressure. For this kind of crossover to occur, an ETF has to be in a strong bullish uptrend.

Now, as you can see, the 1-Month Price is still above the 10-Month SMA. That means the bullish trend is still in play!

As long as the 1-Month price remains above the 10-Month SMA, the ETF is more likely to keep trading at new highs and should be purchased.

Our initial price target for IYR is 103.00 per share.

133.4% Profit Potential for IYR Option

Now, since IYR’s 1-Month Price is trading above the 10-Month SMA this means the ETF’s bullish rally will likely continue. Let’s use the Hughes Optioneering calculator to look at the potential returns for an IYR call option purchase.

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 IYR 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 IYR option example, we used the 1% Rule to select the IYR 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 IYR in-the-money option strike price, IYR 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 IYR is flat at 99.19 at option expiration, it will only result in a 1.9% loss for the IYR 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 will 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 IYR on 4/30/2021 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 IYR increases 5.0% at option expiration to 104.15 (circled), the call option would make 65.8% before commission.

If IYR increases 10.0% at option expiration to 109.11 (circled), the call option would make 133.4% before commission and outperform the stock return more than 13 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 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.

Get Chuck's Trades Sent to You!

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 Huges Signature

Chuck Hughes

Editor, Trade of the Day

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Strong 'Buy' for U.S. Real Estate ETF

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