Residential REIT in the 'Buy Zone'

March 4^th, 2022

Residential REIT in the ‘Buy Zone’

Dear Reader,

Yesterday, we looked at a Daily Price Chart of CRISPR Therapeutics AG. noting that the stock’s 1-Month Price is trading below the 10-Month SMA signaling a ‘Sell’.

For today’s Trade of the Day we will be looking at a Keltner Channel chart for the NexPoint Residential Trust, Inc., symbol: NXRT.

Before breaking down NXRT’s daily Keltner Channel chart let’s first review what products and services the company offers.

NexPoint Residential Trust is a publicly traded REIT, with its shares listed on the New York Stock Exchange under the symbol "NXRT," primarily focused on acquiring, owning and operating well-located middle-income multifamily properties with "value-add" potential in large cities and suburban submarkets of large cities, primarily in the Southeastern and Southwestern United States.

Now, let’s begin to break down the Keltner Channel chart for NXRT. Below is a Daily Price Chart and the three Keltner Channels for NexPoint Residential Trust.

Buy NXRT Stock

The Hughes Optioneering Team uses the Keltner Channels as an indicator to determine whether a stock is overbought or oversold. If a stock’s daily share price is trading above the upper Keltner Channel, this signals that the stock is temporarily overbought and subject to a retracement.

Even stocks that are in the strongest bull trends do not advance in a straight line. There are always price retracements along the way. When a stock becomes overbought, it’s price will typically decline soon after as the inevitable profit taking occurs.

The NXRT daily price chart shows that the stock is in a strong price uptrend and has become overbought several times. You can see this as NXRT has traded above the Upper Keltner Channel on multiple occasions recently.

But, in every scenario when NXRT became overbought, the stock soon experienced a pullback.

Finding opportunities when a stock experiences a pullback is why the Hughes Optioneering Team uses the Keltner Channels. They help us find a lower-risk entry point.

The Keltner Channel “Buy Zone” occurs when a stock is trading below the upper Keltner Channel. Once the daily price is trading below the upper channel, it provides a lower-risk buying opportunity as the stock is likely to rally.

Our initial price target for the NXRT stock is 95.00 per share.

62.0% Profit Potential for NXRT Option

Now, since NXRT has retraced in the Keltner Channel ‘Buy Zone’, this offers a prime trade entry opportunity. Let’s use the Hughes Optioneering calculator to look at the potential returns for a NXRT 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 NXRT 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 NXRT option example, we used the 1% Rule to select the NXRT 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 NXRT in-the-money option strike price, NXRT 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 stock closes flat at option expiration it will result in a 100% loss for your option trade! In this example, if NXRT is flat at 87.84 at option expiration, it will only result in a 3.8% loss for the NXRT 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 stocks.

The prices and returns represented below were calculated based on the current stock and option pricing for NXRT on 3/3/2022 before commissions.

When you purchase a call option, there is no limit on the profit potential of the call if the underlying stock continues to move up in price.

For this specific call option, the calculator analysis below reveals if NXRT increases 5.0% at option expiration to 92.23 (circled), the call option would make 29.1% before commission.

If NXRT increases 10.0% at option expiration to 96.62 (circled), the call option would make 62.0% before commission and outperform the stock return more than 6 to 1.

The leverage provided by call options allows you to maximize potential returns on bullish stocks.

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.

Start Getting Trades from the Champion

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!

You can also schedule a call by clicking here!

Wishing You the Best in Investing Success,

Chuck Huges Signature

Chuck Hughes

Editor, Trade of the Day

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Residential REIT in the 'Buy Zone'

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