The following trade frame is an example for educational purpose only. Please read the Disclaimer at the bottom.
Ormat Technologies (ORA) is a company that was founded in 1965 and engages in geothermal and recovered energy power around the world. Its market cap is 3B$.
The clean energy sector has been a relative strength leader and for example the PBW etf which includes about 40 companies (ORA included) has preformed very well lately.
And how did ORA did lately?
So, obviously we are looking at a symbol that preformed worse than its sector.
Looking at the financial reports from Aug 4th, we see no problem with the stock. The company improved its margins in all operating segments:
And what do the analysts think?
So we see no problem here too.
Now lets look at the daily chart:
Lets ask some of Ken's trade framing questions:
What do I see? I see a triple bottom support.
What could it do? go back to 70 or even 85.
Which way would you trade it ? Long (this sector is hot).
Where would you enter? here at the support level
Where would it fail? if I use options I don't need to answer that.
Would you stop and reverse? No, as part of my Vaccine game plan.
Where would it stall? maybe around 63, so I need to give it time to build up.
Where would you preserve? at 65 around the RL270 I will lock in BE with options.
Where would it then go? probably to 70.
Would you stop and reverse? No
Where would you re-enter? Using options I don't need to answer that.
Now lets ask some Options questions:
How many days to expiration do I want to give this position? I tend to choose 43 days and not 15 days, although the move can happen fast.
Is there any dividend Ex-date in that time period that I won't get as a holder of a call option? Yes on Aug 17 there is an ex date of 0.11$ dividend. This has minor impact on the calls, and doesn't change my trade frame.
Which strike do I want? I tend to choose the ATM strike (60) to get maximum gamma. Also I see that the premium at risk is only 3.6% of the strike. This is my 1R.
Where is my BE point? 62.2 until Sep 18th.
What is the proper Position Sizing for me? 10 calls which cost 2.2 each (2,200$ = 1R). That will give me an exposure like holding 1000 shares of ORA (60k$) above 60.
What is my R:R ? at 70 the call will be worth 10$ (which means 7.8$ profit) which is 3.5 : 1 R:R.
Anything else that I should be aware of?
Because ORA is also listed in the Tel-Aviv Stock Exchange in the main Index, I happen to know that today (Aug 6th) on the semi-annual index re-balancing, there is going to be significant selling pressure (about 30M $ ) from ETFs that hold it, because the exchange capped the index weights of dual listed companies:
So I know that about 55 min after the session begins today (the time of the Close for the Israeli stocks exchange) there is a possibility for selling pressure on the stock. If that happens, I might consider adding turbo day-trading and going long. However, the big players know that, and in many times someone is just waiting to buy these opportunities.
Conclusion: I see a low risk idea where the probabilities and R:R looks interesting to me:
One last thing. The liquidity in the options of this stock is not so good and it takes time to get filled inside the bid ask spread. That was an example for educational purpose only.
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It should not be assumed that the methods, techniques, or indicators presented in this example will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. We, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.