Powerful 'Buy' Signal for S&P 500 ETF

November 23^rd, 2021

Powerful ‘Buy’ Signal for S&P 500 ETF

Dear Reader,

Yesterday, we looked at a Daily Price Chart of the Consumer Discretionary Sector ETF, noting that XLY’s 24/52 Day MACD is trading above the 18-Day EMA.

For today’s Trade of the Day e-letter we will be looking at a monthly chart for ProShares UltraPro S&P500 ETF, symbol: UPRO.

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

UPRO seeks daily investment results, before fees and expenses, that correspond to three times the daily performance of the S&P 500 Index. The fund invests in financial instruments that ProShare Advisors believes, in combination, should produce daily returns consistent with the fund's investment objective. The index is a measure of large-cap U.S. stock market performance.

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

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

Buy the UPRO ETF

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

This crossover indicated the buying pressure for UPRO 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 UPRO is 160.00 per share.

Profit if UPRO is Up, Down or Flat

Now, since UPRO’s Monthly Price is currently trading above the 10-Month SMA and will likely rally from here, let’s use the Hughes Optioneering calculator to look at the potential returns for a UPRO call option spread.

The Call Option Spread Calculator will calculate the profit/loss potential for a call option spread 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 the UPRO ETF at option expiration.

The goal of this example is to demonstrate the ‘built in’ profit potential for option spreads and the ability of spreads to profit if the underlying ETF is up, down or flat at option expiration. Out of fairness to our paid option service subscribers we don’t list the option strike prices used in the profit/loss calculation.

The prices and returns represented below were calculated based on the current ETF and option pricing for UPRO on 11/22/2021 before commissions.

Built in Profit Potential

For this option spread, the calculator analysis below reveals the cost of the spread is $310 (circled). The maximum risk for an option spread is the cost of the spread.

The analysis reveals that if the UPRO ETF is flat or up at all at expiration the spread will realize a 61.3% return (circled).

And if the UPRO ETF decreases 10.0% at option expiration, the option spread would make a 61.3% return (circled).

Due to option pricing characteristics, this option spread has a ‘built in’ 61.3% profit potential when the trade was initiated.

Option spread trades can result in a higher percentage of winning trades compared to a directional option 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 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.

Become a Member Today!

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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Powerful 'Buy' Signal for S&P 500 ETF

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