Using The Power Of The POWR Stock Screener with technical and volatility analysis to find a low risk trade with an edge at ArcellorMittal (MT).
One of my favorite tools in the POWR Stocks toolkit is the Stock Screener. It does a lot of the heavy lifting that is crucial in my daily trades selection and building process. As an options trader and analyst, I seek to combine the elements of fundamental, technical and volatility analysis with the POWR Screener to try to identify trading ideas with probabilistic advantage.
A presentation of one of the most recent potential trade ideas will enlighten you on how to better harness the power of POWR stock ratings.
I have implemented the POWR Stock Screener to identify only A – Strong Buy – rated stocks in A – Strong Buy rated industries. Also, the screen only included stocks that carried a value component rating of A. Finally, I wanted to see only stocks trading below their 20-day moving average.
The thought process was to reduce risk by focusing more on value and stocks that haven’t rebounded too much given the recent rise in the overall market in recent days. Chasing performance is generally not a good idea, especially in this market environment.
This narrowed my list of potential trade candidates down to 18. Since we are looking for potential options trades, low priced stocks are not as viable for options strategies. $20 is the minimum level I would consider for a bona fide advantageous options strategy over buying the stock outright.
That left only six candidates. Five of those six really didn’t have enough options volume to warrant trading options in that stock. It is always important to consider liquidity in options trading. For example, Veritiv (VRTV) only traded 8 option contracts on Friday and had extremely wide bid-ask spreads.
This left us with a potential candidate – our old friend ArcelorMittal (MT). The POWR Options Portfolio has traded MT Options four times in the past with solid success.
After identifying that A-rated stock in an A-rated industry with an A value rating that is trading below the 20-day moving average, it is always a good idea to overlay technical analysis.
MT stock is the most oversold in the past two years. The 9-day RSI fell below 20 but improved. The MACD also reached an extreme before rising. Bollinger Percent B printed a negative result and then regained positive territory. The shares are trading at a massive discount to the 20-day moving average. There is impending support at $22.50.
On previous occasions, all of these similarly aligned indicators marked significant short-term lows in the MT stock (highlighted in aqua). I also added in the previous four times that the POWR options portfolio took a position on MT calls.
Interestingly, on the chart, implied volatility (IV) is now well below recent month highs. This means that option prices are comparatively cheaper, which is a good thing when looking to buy options.
IV is at the 53rd percentile, which means option prices are in the middle of the price range. They are, however, cheap relative to actual or historical volatility (HV), at 64%.
It is also useful to do a peer group analysis. POWR stock industry ratings are another very useful tool for traders and investors. The steel industry is ranked number 5 overall and stands at 96e percentile. MT sits near the top of the list at number 11.
In comparison, Commercial Metals (CMC) is only a C – Neutral stock. It ranks near the bottom end at number 26 in steel stocks.
Still, CMC has largely outperformed MT over the past few months. Over the past year, CMC is up 17%, while MT is down just over 21%. Prior to February, the two stocks were highly correlated. This makes sense since they are both steel stocks. Since then, however, CMC has risen around 5% while MT has fallen over 32%.
Expect this divergence to start to converge, with the Strong Buy MT performing relatively better than the Neutral CMC over the next few weeks. We could very well add MT calls to the POWR options portfolio very soon.
Combining the POWR Stock Screener with additional analysis can create a complete trade identification system to help you find the edge and put the odds in your favor. That’s what we aim to do every day with the POWR options portfolio. Remember that trading is about probability, not certainty.
What to do next?
If you’re looking for the best options trades for today’s market, you should check out our latest overview How to Trade Options with POWR Ratings. Here we show you how to consistently find the best options trades, while minimizing risk.
If this interests you and you would like to learn more about this powerful new options strategy, click below to access this timely investment overview now:
How to trade options with POWR odds
All my wishes!
Editor, POWR Options Newsletter
MT shares closed at $23.92 on Friday, up $0.61 (+2.62%). Year-to-date, MT is down -23.94%, compared to a -17.26% rise in the benchmark S&P 500 over the same period.
About the Author: Tim Biggam
Tim spent 13 years as Chief Options Strategist at Man Securities in Chicago, 4 years as Chief Options Strategist at ThinkorSwim and 3 years as a Market Maker for First Options in Chicago. He makes regular appearances on Bloomberg TV and is a weekly contributor to the TD Ameritrade “Morning Trade Live” network. His primary passion is to make the complex world of options more understandable and therefore more useful to the everyday trader. Tim is the editor of the POWR Options newsletter. Learn more about Tim’s journey, as well as links to his most recent articles.
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