REIT Shares Drop Off Steeply

We recently looked at a Daily Price Chart for Akamai Technologies, Inc. (AKAM), noting that the stock’s 50-Day EMA is trading below the 100-Day EMA signaling a ‘Sell,’ states Chuck Hughes of TradeWinsDaily.
 

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For our current trade of the day, we will be looking at a Daily Price chart for Sun Communities Inc. (SUI). Before breaking down SUI’s daily price chart let’s first review which products and services are offered by the company.

Sun Communities, Inc. is a REIT that, as of March 31, 2022, owned, operated, or had an interest in a portfolio of 603 developed MH, RV, and marina properties comprising nearly 159,300 developed sites and over 45,700 wet slips and dry storage spaces in 39 states, Canada, Puerto Rico, and the UK.

Now, let’s begin to break down the Daily Price chart for SUI. Below is a Daily Price Chart with the price line displayed by an OHLC bar.

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Sell SUI Stock

The Daily Price chart above shows that SUI stock began reaching a series of lower highs and lower lows since mid-September. This pattern of bearish trading suggests the stock will march on to a further decline.

You see, after a stock makes a series of two (or more) lower highs and lower lows, the stock typically continues its price downtrend and bearish positions should be purchased. Our initial price target for SUI stock is 129.00 per share.

99.4% Profit Potential for SUI Option

Now, since SUI stock is currently making a series of lower highs and lower lows this means the stock’s bearish decline will likely continue. Let’s use the Hughes Optioneering calculator to look at the potential returns for an SUI put option purchase.

The Put Option Calculator will calculate the profit/loss potential for a put option trade based on the price change of the underlying stock/ETF at option expiration in this example from a flat SUI price to a 12.5% decrease.

The Optioneering Team uses the 1% Rule to select an option strike price with a higher percentage of winning trades. In the following SUI option example, we used the 1% Rule to select the SUI option strike price but out of fairness to our paid option service subscribers, we don’t list the strike price used in the profit/loss calculation.
 

Trade with Higher Accuracy

When you use the 1% Rule to select an SUI in-the-money option strike price, SUI stock only has to decrease by 1% for the option to break even and start profiting! Remember, if you purchase an at-the-money or out-of-the-money put option and the underlying stock closes flat at option expiration it will result in a 100% loss for your option trade! In this example, if SUI stock is flat at 137.31 at option expiration, it will only result in a 4.2% loss for the SUI option compared to a 100% loss for an at-the-money or out-of-the-money put option.

Using the 1% Rule to select an option strike price can result in a higher percentage of winning trades compared to at-the-money or out-of-the-money put options. This higher accuracy can give you the discipline needed to become a successful option trader and can help avoid 100% losses when trading options.

The goal of this example is to demonstrate the powerful profit potential available from trading options compared to stocks. The prices and returns represented below were calculated based on the current stock and option pricing for SUI on 10/5/2022 before commissions.

When you purchase a put option, there is virtually no limit on the profit potential of the put if the underlying stock continues to decline in price. For this specific put option, the calculator analysis below reveals if SUI stock decreases 5.0% at option expiration to 130.44 (circled), the put option would make 47.6% before commission. 

If SUI stock decreases 10.0% at option expiration to 123.58 (circled), the put option would make 99.4% before commission and greatly outperform the stock. The leverage provided by put options allows you to maximize potential returns on bearish stocks.


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Learn more about Chuck Hughes here.

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