What We Learned From Our Qualcomm Trade
On November 5, one of the stocks on my watchlist hit my Profit Trigger: semiconductor maker Qualcomm (Nasdaq: QCOM).
The company reported earnings for the third quarter that topped analysts’ expectations by 22%. Its share price shot up 10%.
Many investors thought they’d already missed the trade.
But time and time again, my Profit Trigger has shown the opposite — bigger gains come after the stock reports earnings.
So, the next day, I wrote to you with detailed instructions on how to enter the trade. And to make our perfect trade on Qualcomm, I laid out the details for the $145 January 15, 2021 call option.
I keep saying this was a great trade for us.
That’s not because it was a huge winner. We walked away with a modest double-digit gain in nine weeks. (You have no idea how bad I wanted it to deliver a triple-digit gain for you.)
But it was a great trade because it gave us a key takeaway — stick to your strategy.
Rule No. 1 — Trust the Approach
We had a front-row seat to see how options really work.
Our position was up more than 50% early on, only to see those gains wiped out in a day.
During the time we held the options, there was a whirlwind of news to hit the markets, too.
From bans on Chinese companies to protesters entering the Capitol building, it doesn’t get much crazier than these past few weeks.
Still, we stuck to our strategy, and it delivered for us.
And that’s my No. 1 takeaway from our call options on Qualcomm — stick to your strategy.
When it comes to trading the stock market, rule No. 1 is to trust your approach.
I can’t tell you how many mistakes I’ve made, and seen others make, by not following a system.
Maybe they get a hot stock tip from a friend … But when the headlines hit and the stock sinks a little, they panic and sell. They do this because they really don’t know why they got in, other than because a friend said so.
But we have a concrete approach to each trade. As long as you have that, you’ll be in a position to weather whatever the market throws at you.
The bottom line is that if you don’t have a proven strategy — one that works in bull and bear markets — you are not going to stay successful in your trading approach.
A One-of-a-Kind Offer
Melissa (name changed for her privacy) is going above and beyond to grasp the power of options. Take a look at what she sent us:
I just wanted to thank you for your awesome options training. Last year was my first time trading options. I’m taking a few different courses online to learn how to trade more effectively (i.e. cash flow, risk management, fundamental & technical analysis, etc.)… Of course, I started small with just one contract at a time.
I really enjoyed your training — you are a fantastic teacher. You made it easy for a newbie to understand, and I loved your videos, too. Thanks to your training, I made $584 in less than a month on the Qualcomm trade you recommended. I bought for $8.90 on November 6 and sold on December 4 for $14.77.
This was a powerful email.
Emails like this are what it’s all about for me.
We edited the email a little for clarity, but you’ll notice she didn’t make $100,000 from a single trade. She pocketed nearly $600 in a month on a single contract. And she’s just getting started.
You may be like Melissa, putting in the work to finally understand and take advantage of options. Many of you may be ready for the next step.
That’s why today, I want to extend our one-of-a-kind offer to join my Quick Hit Profits options research service to you personally.
It’s a service that’s perfect for you if you are looking to get your toes wet with options.
We call it Quick Start.
And it’s the best way to get started with my No. 1 options research service.
Next week, we’ll go over the difference between options and stocks, other than leverage, to determine which investment tool is best for you.
Before I sign off, I wanted to share my latest Chart of the Day with you.
Chart of the Day — Netflix
Editor’s Note: To be clear, this is not a recommendation. These are articles Chad publishes to Investopedia from time to time and are purely for educational purposes. Chad does not continue to update readers about the ideas mentioned in these articles. Enjoy!
— Melody Kerr, Assistant Managing Editor, Weekly Options Corner
Streaming media giant Netflix Inc. (Nasdaq: NFLX) is poised for a major breakout. This was one of the few companies that thrived during the pandemic.
With consumers stuck inside, streaming surged in 2020. But that growth began to slow near the end of the year. That’s when investors got cautious on the stock and slowed down its rally.
Since July, shares have been bouncing between a key resistance level (in red) and a key support line (in green). Resistance levels are prices that the stock has not been able to break above in a certain period of time. Support lines are levels that prices haven’t been able to break below.
Both of these key levels are narrowing in on each other, creating a classic wedge pattern at the start of 2021. Wedge patterns usually tell us that a stock is about to make a move to the upside or downside. We use them as indicators that we’re about to see a major jump or fall in the stock.
Take a look:
The resistance level has been tested three times, making it a key level to watch. It has also been around for five months now, making this wedge pattern something that will be front and center for traders.
When the breakout occurs, that will pave the way for a quick move of 25%, which is the height of the pattern. And I’m expecting Netflix to break out higher, giving it a $685 price target.
These lines are from the “Relative Rotation Graph” concept, which compares Netflix to the S&P 500. The Relative Rotation Graph, or RRG, combines the relative strength of the stock to the S&P 500 with momentum to create a unique view on the stock.
It shows that stocks rotate from leading the overall market to weakening (as the momentum slows) and, eventually, lagging the market before improving (as momentum picks back up). I expect them to come back to leading the market once again. Stocks tend to rotate in that specific order: leading, weakening, lagging and improving.
Right now, Netflix is in the lagging phase, and it is expected to move to improving. As it does, that should help push the stock back up to $540 per share, near the resistance point.
But as it turns to leading from there, that could push the shares beyond that key level and have the stock on its way to my $685 price target. Earnings next Tuesday could be the breaking point in this wedge pattern.
The Bottom Line
Netflix was one of the companies to benefit from the pandemic. But now, investors are pausing on the rally as shares fall into a wedge pattern. After five months of consolidating, Netflix shares are on pace to break out in the coming weeks. The RRG gives us the expectation that Netflix can break out to the upside and hit a price target of $685 later this year.
Chad Shoop, CMT
Editor, Quick Hit Profits
P.S. Did you place our Qualcomm trade? If so, I’d love to hear from you. Was it your first options trade ever? Did you make any money? And what did you think of the overall experience with options. You can send your comments to WeeklyOptionsCorner@BanyanHill.com and let us know.
Investing has consumed my life since college. While double majoring in finance and economics at the University of North Carolina at Greensboro, I founded the university’s economics club, joined the finance club and participated in the Chartered Financial Analyst research competition to represent our school.