Buying Pressure Pushes VNQ Upward

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December 17th, 2021 Buying Pressure Pushes VNQ Upward Dear Reader, Yesterday, we looked at a Monthly Price Chart of Rexford Industrial Realty, Inc., noting the stock’s 1-Month Price is trading above the 10-Month SMA signaling a ‘Buy’. For today’s Trade of the Day we will be looking at an On Balance Volume chart the Vanguard Real Estate ETF, symbol: VNQ. Before breaking down VNQ’s OBV chart let’s first review the investment objective of the ETF. The VNQ ETF seeks to provide a high level of income and moderate long-term capital appreciation by tracking the performance of the MSCI US Investable Market Real Estate 25/50 Index that measures the performance of publicly traded equity REITs and other real estate-related investments. Confirming a Price Uptrend with OBV The VNQ daily price chart below shows that VNQ is in a price uptrend as the current price is above the price VNQ traded at five months ago (circled). The On Balance Volume chart is below the daily chart. On Balance Volume measures volume flow with a single Easy-to-Read Line. Volume flow precedes price movement and helps sustain the price uptrend. When an ETF closes up, volume is added to the line. When an ETF closes down, volume is subtracted from the line. A cumulative total of these additions and subtractions form the OBV line. On Balance Volume Indicator ● When Close is Up, Volume is Added ● When Close is Down, Volume is Subtracted ● A Cumulative Total of Additions and Subtractions form the OBV Line Volume flow precedes price and is the key to measuring the validity and sustainability of a price trend.  We can see from the OBV chart below that the On Balance Volume line for VNQ is sloping up. An up-sloping line indicates that the volume is heavier on up days and buying pressure is exceeding selling pressure. Buying pressure must continue to exceed selling pressure in order to sustain a price uptrend. So, On Balance Volume is a simple indicator to use that confirms the price uptrend and its sustainability. The numerical value of the On Balance Volume line is not important. We simply want to see an up-sloping line to confirm a price up trend. Confirmed ‘Buy’ Signal for VNQ Since VNQ's OBV line is sloping up, the most likely future price movement for VNQ is up, making VNQ a good candidate for an ETF purchase or a call option purchase. Let's use the Hughes Optioneering calculator to look at the potential returns for a VNQ 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 VNQ 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 VNQ option example, we used the 1% Rule to select the VNQ 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 VNQ in-the-money option strike price, VNQ 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 VNQ ETF is flat at 111.88 at option expiration, it will only result in a 0.9% loss for the VNQ 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 can 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 VNQ on 12/16/2021 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 VNQ increases 5.0% at option expiration to 117.47 (circled), the call option would make 50.0% before commission. If VNQ increases 10.0% at option expiration to 123.07 (circled), the call option would make 101.0% before commission and outperform the ETF return more than 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. 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! Happy Holidays from the Hughes Optioneering Team! Chuck and the Hughes Optioneering Team are very grateful for our readers who are dedicated followers of this newsletter. We appreciate your interest in the newsletters that we create each week for you. Chuck and the Optioneering Team are going to be taking some time off as the holidays are approaching. This will be the last Trade of the Day newsletter until January 3rd when we will resume writing the newsletter as usual. We hope all our readers enjoy the upcoming holiday season!   Wishing You the Best in Investing Success, Chuck Hughes Editor, Trade of the Day Have any questions? Email us at dailytrade@chuckstod.com   If you didn't create an account using this email address, please ignore this email or unsubscribe. To ensure delivery of this email to your inbox and to enable images to load in future mailings, please add todaystrade@chuckstod.com to your e-mail address book or safe senders list. © 2021 Tradewins Publishing. All rights reserved. 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Hypothetical performance results have many inherent limitations, some of which are described below. Also, the hypothetical results do not include the costs of subscriptions, commissions, or other fees. Because the trades underlying these examples have not actually been executed, the results may understate or overstate the impact of certain market factors, such as lack of liquidity. Legacy makes no representations or warranties that any account will or is likely to achieve profits similar to those shown. No representation is being made that you will achieve profits or the same results as any person providing a testimonial. No representation is being made that any person providing a testimonial is likely to continue to experience profitable trading after the date on which the testimonial was provided, and in fact the person providing the testimonial may have subsequently experienced losses. 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