VantagePoint Trading Software is a forecasting tool that uses both end of day data and artificial intelligence to provide traders a forecast of market movement. These forecasts are 1-3 days in advance and help traders improve their timing on making trades and maximizing profit potential. The artificial intelligence software forecasts market movement for stocks, futures, Forex and ETFs. RGR in focus today…
This journal entry looks at the recent market movements of Sturm, Ruger & Co. NYSE: RGR.
Update for RGR
On 10/12/17, we highlighted a “less than bullish” outlook on Sturm Ruger (RGR). We were not convinced that upside had any steam behind it and commented on the potential bearish scenario. The potential setup we highlighted was selling the October 52.50/55.00 call vertical at $0.50. Here is the recent VantagePoint chart of RGR:
The advantageous thing about selling a call vertical is that you can profit in multiple ways. You can profit if the underlying goes up just a bit, stays where it is, or goes down. But, you run the potential of receiving less in profit. Less risk equals less return. It’s akin to “betting on the field” in sports. You say what is NOT going to happen as opposed to what is. There’s a lot better chance at “being right” when you do this, but with obviously less reward. We showed how we could sell this spread at $0.50 and it’s trading a nickel or less today. If you held this position until expiration, any closing price in RGR below our short $52.50 strike would allow a potential trader to collect the entire premium. We found it prudent as a hypothetical example to take our risk off the table at $0.05.
VantagePoint Trading Journal RGR
Much of the potential bullish steam from last week seems to have lost its strength. Still, we are in the bullish part of the spectrum as far as the broad indexes go. It does make it hard to take a secular bull play as any strong signal is completely on the board. We can take this stance because we can analyze individual stocks, futures or ETFs using VantagePoint and its artificial intelligence predictive technology. Let’s look at Sturm Ruger & Company (RGR):
VantagePoint identifies two significant things. The first is the bearish crossover VantagePoint indicates with the blue predictive indicator line crossing below the black, simple 10-day moving average on 10/06/17. The second significant occurrence is the VantagePoint propriety neural index indicator moving from the one (1) to the zero (0) position. This indicator shows market strength or weakness over the next 48 hours. The move to the zero position is a confirmation of the bearish scenario playing out.
If one were a straight stock trader, shorting the stock in the $51.00 area could prove to be prudent in anticipation of continued downside momentum. This would be a conservative way to enter RGR because of the lack of time limitation associated with other trading strategies. Using this potential strategy would also include a stop order in the $53.00 area to mitigate potential losses.
If one were a more active trader, an options play could prove to be advantageous as well. It should be noted that implied volatility is quite elevated for RGR. Elevated levels of implied volatility mean more premium to potentially collect. We don’t want to be at risk for an undue amount of time so let’s consider regular October monthly options. Selling the October 52.5/55 call spread could prove to be an astute play. It is trading $0.50 right now. The maximum gain in selling this spread is the $0.50 of premium we collect. The maximum loss is the width of the spread ($2.50) less premium collected ($0.50) or $2.00. In this case, we are laying odds of 4:1. This might seem like steep odds to lay, but you must consider the fact that we are still approximately $1.30 (or ~2.5%) out of the money. If RGR is below 52.50 at expiration, we collect our entire premium. The breakeven price is $53.00 (52.50 + 0.50).