October 25, 2018

Even In This Market, Equity Residential Stands Tall

The selloff in U.S. stocks accelerated on Wednesday, wiping out gains for the year in both the DJIA and S&P 500 Index, while the Nasdaq lapsed into a correction. It was the largest daily decline on Wall Street since 2011, but the volatility pendulum is attempting to swing back, with U.S. stock index futures posting gains ahead of the open. The needed boost is coming ahead of some big name earnings results today, including reports from Amazon (NASDAQ:AMZN) and Google (GOOG, GOOGL).

*Source:  Seeking Alpha

Let’s consider Equity Residential (Ticker: EQR):

The VantagePoint platform recently indicated continued upside momentum.

Using the predictive indicators embedded within the VantagePoint platform and its predictive AI technology, we will point out three significant things. We have a bullish crossover indicated by the blue predictive indicator line crossing above the black simple moving average on October 24th.  We can combine that with the VantagePoint propriety neural index indicator moving from the RED to the GREEN position on that same day.  This indicator measures strength and weakness for a 48-hour period, in this case, strength.  The move to the GREEN position further makes the case for a potential bullish scenario. We also have the predicted high and low above yesterday’s actual high and low indicating further weakness.  I want to play the VP bullish indication.

Strategy Discussion

If you are strictly a stock trader, simply buying EQR in the $65.50 area is a prudent move.  You are anticipating a move to the upside.  It is always a good idea to enter a sell-stop order to mitigate potential losses.  Placing that sell-stop in the $64.00 area will achieve that goal.

For active traders with a shorter investment time horizon, you can consider a setup utilizing options. Given the market conditions outlined above, taking an active, premium debit approach may be the best path to success.

Because of the reasons given above, the purchase of a debit call spread may be one way to approach this situation.  You will first want to calculate your target strike.  In order to do this, you will need three pieces of data:  current price, expiration date and the implied volatility associated with that expiration date.  For EQR, that yields a targeted strike of ~$70.  You may want to consider the EQR November 16th regular monthly expiration 67.5/70 call spread, buying it for $0.55.  The most you can lose is the premium paid and the most you can gain is the width of the wider spread less any premium paid.  Max risk = $0.55 and max reward = $1.95.  This means that you are getting odds of 3.55:1.

Given the trading and market environment outlined above, a trader must evaluate whether this reward/risk ratio is appropriate for his/her risk tolerance.

Position Update

You may recall our bullish to neutral position that we identified in Kohl’s (Ticker:KSS) earlier this week.  Specifically, the November 2nd weekly expiration 70/71 put spread, selling it for $0.35.  The most you can gain is the premium collected and the most you can lose is the width of the wider spread less any premium collected.  Max gain = $0.35 and max loss = $0.65.  The market has been an absolute washout this week, but look at the KSS chart:

Even given the market movement this week that saw all the 2018 gains for both the Dow Jones Industrial Index and the S&P 500 vanish, KSS held its ground.  We are continuing to hold this position.

If you would like to learn more about the VantagePoint platform and take advantage of the exclusive offer that our clients enjoy, please visit:

https://discover.vantagepointsoftware.com/prosper-demo/

about the author:

Mike Shorr

Since 1994, Michael has been an on-the-floor market maker, Vice-President of Interest Rate Derivatives for Knight Financial Products and Director of Education and Options Instructor at Trading Advantage. He makes the oftentimes complex world of options and trading accessible to the novice and advanced trader alike. Michael has a Bachelor of Science degree in Statistics and Finance from the University of Illinois Champaign-Urbana. He presently is Director, Trader Education at ProsperTradingAcademy.

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