EWZ Underpriced Bullish Call Spread has Profit Potential of 47%

29 September 2022, 12:49 PM

Re-Tweet
Share on LinkedIn

By Dmitry Pargamanik

EWZ bull call spread statistics

How this EWZ Bull Call Spread Works

The bottom of the EWZ trade card shows us that we would buy one call and sell another with the same 21-Oct-22 expiration (this is a bull call spread as indicated on the top of the card).

Buy: 21-Oct-22 24.5 CALL

Sell: 21-Oct-22 29.5 CALL

Reasons to Like This Trade

  • You can buy this spread for $3.39 when theoretically it’s worth $4.18. Simply put, the market is implying a theoretical edge of 23.3%.
  • Your maximum gain is $1.61, which means you can make an astounding 47.5% return on your investment in 17 trading days! (That's if the stock closes at 29.5 or above. $1.61 / $3.39 = 47.5%) At the time of this alert, the stock was trading at 28.83.
  • The stock only needs to close at, or above, 29.50 after 17 trading days for you to realize this maximum return. That’s only a 2.3% gain! If you look at EWZ historically drift, you will find that 81% of the time the stock drifted higher than 2.3% in 17 trading days. Based on historical stock behavior (historical stock drift) the spread has a 81% chance of success.
  • 6 out of 7 indicators are pointing to a bullish sentiment in the stock, which is enough to believe there is a decent chance the stock price could hit its mark of 29.50. Look, nobody knows for sure if the stock is going to go up or down, but, if you had to handicap the stock price, these metrics are indicating that EWZ is really riding the momentum of bullish signals.
    Metric Signal Bull or Bear
    Relative Performance 1-yr Outperform Bullish EWZ Bullish Relative Performance 1 year
    Relative Performance 3-Mon Outperform Bullish EWZ Bullish Relative Performance 3 Month
    Relative Performance 2-Wk Outperform Bullish EWZ Bullish Relative Performance 2 Week
    Seasonality Strong Bullish EWZ Bullish Seasonality
    Technical Dead Cat Bounce Bearish
    Historical Price Action 59% Uptrend Bullish EWZ Bullish Historical Price Action
    Option Order Flow Sentiment Positive Net Option Delta Bullish EWZ Bullish Option Order Flow Sentiment

Conclusion

This trade in EWZ looks like a good opportunity because:

  1. 6 out of 7 bullish indicators support positive momentum
  2. 47.5% potential return on your investment
  3. Theoretical edge of 23.3%
  4. The stock price is only 2.3% away from the price for you to make the maximum gain!

How to Find More EWZ Bull Call Spread Strategies

How you can find bull call spread trade ideas for other stocks


See more trade ideas for EWZ


And if you want to find more bull call spreads for other stocks, go to the bull call spread screener

⤺ ⤻

Relative Performance

EWZ has outperformed the market in the last year with a price return of +1.1% while the SPY ETF lost -14.9%. EWZ has also outperformed the stock market ETF in the last 3 month and 2 week periods returning +4.3% and -6.5%, respectively, while the SPY returned -4.2% and -7.6%, respectively.

Learn about a stocks relative strength


Seasonality: Strong

The strategy involves holding the position from Sep 29 to Oct 21 expiration. Historically, this has been a strong seasonal period. In the past 12 years, EWZ shares have increased 83% of the time between Sep 29 to Oct 21, while averaging a return of +4.2%. Learn how to look up stock seasonality.

Technical: Dead Cat Bounce

The stock has been on a downtrend and the stock tried to bounce back but failed only to continue its decline.

Historical Price Action: 59% Uptrend

In the last 4 years, there were 32 historical samples of EWZ stock price movements over the same time period as this option spread. The stock moved up 59% of the time for an average return of +9.7%.

How to generate statistics on a stocks historical price return distribution

Option Order Flow Sentiment: Positive Net Option Delta

At the time of this EWZ trade idea, bullish option order flow exceeded bearish option order flow. The net option delta volume was 517 K.

Learn more about option delta volume.

Find out the latest sentiment from the options market for EWZ

NOTE: Stock and option trading involves risk that may not be suitable for all investors. Examples contained within this report are simulated and may have limitations. Average returns and occurrences are calculated from snapshots of market mid-point prices and were not actually executed, so they do not reflect actual trades, fees, or execution costs. This report is for informational purposes only, and is not intended to be a recommendation to buy or sell any security. Neither Market Chameleon nor any other party makes warranties regarding results from its usage. Past performance does not guarantee future results. Please consult a financial advisor before executing any trades. You can read more about option risks and characteristics at theocc.com.


The information is provided for informational purposes only and should not be construed as investment advice. All stock price information is provided and transmitted as received from independent third-party data sources. The Information should only be used as a starting point for doing additional independent research in order to allow you to form your own opinion regarding investments and trading strategies. The Company does not guarantee the accuracy, completeness or timeliness of the Information.