New Highs for Cybersecurity ETF

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Chuck's Trade of the Day

September 3rd, 2021

New Highs for Cybersecurity ETF

Dear Reader,

Yesterday, we looked at a Daily Price Chart of Credit Acceptance Corp. noting the stock’s 24/52 Day MACD line is trading above the 9-Day EMA.

For today’s Trade of the Day we will be looking at a Daily Price chart for the First Trust NASDAQ Cybersecurity ETF, symbol: CIBR.

Before breaking down CIBR’s daily price chart let’s first review the investment objective of the ETF.

The CIBR ETF seeks investment results that correspond generally to the price and yield of an equity index called the Nasdaq CTA Cybersecurity Index. The fund will normally invest at least 90% of its net assets in the common stocks and depositary receipts that comprise the index. The index includes securities of companies classified as "cyber security" companies by the CTA.

Now, let’s begin to break down the Daily Price chart for CIBR. Below is a Daily Price Chart with the price line displayed by an OHLC bar.

Buy the CIBR ETF

The Daily Price chart above shows that the CIBR ETF has been hitting new 52-Week Highs regularly since late August.

Simply put, an ETF does not just continually hit a series of new 52-Week Highs unless it is in a very strong bullish trend.

The Hughes Optioneering team looks for ETFs that are making a series of 52-Week Highs as this is a good indicator that the ETF is in a powerful uptrend.

You see, after an ETF makes a series of two or more 52-Week Highs, the ETF typically continues its price uptrend and should be purchased.

Our initial price target for CIBR is 55.15 per share.

95.6% Profit Potential for CIBR Option

Now, since the CIBR ETF is currently making a series of 52-Week Highs this means the ETF’s bullish rally will likely continue. Let’s use the Hughes Optioneering calculator to look at the potential returns for a CIBR 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 CIBR 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 CIBR option example, we used the 1% Rule to select the CIBR 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 a CIBR in-the-money option strike price, CIBR 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 the CIBR ETF is flat at 52.15 at option expiration, it will only result in a 2.8% loss for the CIBR 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 CIBR on 9/2/2021 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 CIBR increases 5.0% at option expiration to 54.76 (circled), the call option would make 46.4% before commission.

If CIBR increases 10.0% at option expiration to 57.37 (circled), the call option would make 95.6% before commission and outperform the stock return nearly 10 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.

Average Portfolio Return of 190.1%

Below is a screenshot of the current open trade profit results from Chuck’s Inner Circle Trading Service. There are currently $417,406.10 in open trade profits with an average portfolio return of 190.1% demonstrating the ability of the Optioneering Strategy to deliver substantial returns with no losing portfolios.

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 Inner Circle 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

Have any questions? Email us at dailytrade@chuckstod.com

 

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