Cash Cow Newsletter April

Transcription

1 Cash Cow Newsletter April In this week s Cash Cow newsletter I would like to start by looking at the recent performance of the S&P 500 Index: The S&P 500 has begun to recover since the drop experienced earlier in the week. The $SPX closed near the middle Keltner Channel today. The On Balance Volume line is sloping up, which confirms this price uptrend. Although the $SPX is in an intermediate and long term uptrend, it look as if we could be entering a volatile period for the market. This week we should consider utilizing blue chip stocks that have low P/E ratios (undervalued), as these stocks have a greater chance of success during unpredictable time periods. We should also use a mix of both weekly options and monthly option spreads. 1

2 The first profit opportunity we'll look at is LLL (L-3 Communications): We recently looked at LLL in a past newsletter due to the stock s notable price performance. The stock currently has a low P/E ratio of Today LLL closed on the middle Keltner Channel. This offers us an advantageous entry point for a call option purchase. Since LLL does not offer weekly options, we can purchase an In-the-Money call option on LLL for the May 17 th expiration. 2

3 The next profit opportunity we'll look at is CVS (CVS/Caremark): CVS provides integrated pharmacy health care services in the United States. The stock is currently in a 50/100-day EMA uptrend that is confirmed through the presence of an up-sloping On Balance Volume. We should consider purchasing a weekly call option on CVS for the April 19 th expiration to take advantage of any price appreciation during the next week. Those wanting a safer approach can initiate a Market Neutral spread to take advantage of future price growth while limiting risk. 3

4 At current prices the CVS May 17 th 65/75-strike Market Neutral spread has unlimited profit potential with a maximum risk of -12.4%: Buy to Open CVS May 17 th 65-strike Call Buy to Open CVS May 17 th 75-strike Put As you can see from this return analysis, we continue to profit as CVS increases in price. If CVS increases 5% in price by expiration we would profit 15.3%. If CVS increases 10% by expiration we would profit 47.9%, and if CVS increases 15% by expiration we would profit 80.5%. If CVS drops -15% or lower, we would continue to profit as the stock moved down in price. 4

5 The last profit opportunity we will look at this week is HON (Honeywell): Honeywell International operates as a diversified technology and manufacturing company worldwide. The stock is currently trading near the middle Keltner Channel which provides us with a advantageous entry point. We should consider initiating a Market Neutral spread on HON for the May 17 th expiration to take advantage of any price growth while limiting our risk. At current prices the HON May 17 th 85/95-strike Market Neutral spread has unlimited profit potential with a maximum risk of -11.7%. 5

6 Buy to Open HON May 17 th 85-strike Call Buy to Open HON May 17 th 95-strike Put As you can see from this return analysis, we continue to profit as HON increases in price. If HON increases 5% in price by expiration we would profit 13.7%. If HON increases 10% by expiration we would profit 54.9%, and if HON increases 15% by expiration we would profit 96%. If HON drops -15% by expiration we would profit 39.3%. We would continue to profit as HON decreased in price past -11%. Note: Profit performance displayed in this newsletter does not include transaction costs. This newsletter includes some trading ideas following Chuck Hughes trading strategies along with educational information. For a complete listing of Chuck s exact trades, including specific entries and exits and real time Portfolio tracking, please call Brad at or Cash Cow Newsletter Archive Click on the link provided below to access the Cash Cow Archive. Cash Cow Newsletter Archive: 6