This is What I Consider a JOY-ous Return on Investment

When you see the ticker JOY, do you think of the Holiday Season? Do you hear the song Joy to the World?

Well, we know it is definitely not the holidays, but our recent trade on Joy Global, Inc., (NYSE:JOY) did produce a nice gift.

JOY is a manufacturer and servicer of mining equipment in the extraction industries: better known as minerals and ores.

To some, it’s a bit of an unloved and scary investment sector, given the ups and downs in the prices of these commodities, particularly coal and copper.

But as I’ve said before, I’m not really concerned over the movement of whole sectors; what we’re focused on are the moves our Power Profit Trades stock picks make over a historical 10-year period.

In today’s case, you’ll see exactly why it’s the stock-price patterns that matter the most, and yield the best returns possible… in the form of a 50+% return on investment.

Let’s get started…

Our Set-Up Screen Burned Bright Red…

Here is what my Money Calendar looked like for the period of April 27 to May 15. As I looked at the data, I noticed a “bearish” tone for the overall markets, and started to do some digging into the data.

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In looking through stocks listed in the calendar, Joy Global, Inc. jumped out when it showed a potential move down in price to the tune of $3.84 over a 10-day span:

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To take the data further, here is a graphic representation of what JOY has done for the past 10 years:

With the stock price trending down, I’d be thinking about a “short.” To trade a stock to the downside without using options you would have to “short” the stock. To short a stock means to sell it without first owning it. Your brokerage would basically have to borrow the stock from another account to make this happen.

The intent on a stock trade like that is to later buy the stock at a lower price than you sold it, to replace what you borrowed, and then pocket the difference. That kind of play is extremely risky, because the stock could run to a much higher price than where you sold it, and who knows high it could go before you buy it back.

What I liked on the Yearly Trade Results graph was the last three to five years of consistency in the price movement, with the exception of one anomaly year, like the one back in 2006.

The last five years on JOY show an average profit move of about $4 or 4 points, which is pretty much in line with the $3.84 shown.

Here’s How We Boost Our Return… With Less Risk

Instead of shorting the stock, the trade used was to go Long, or buy Put options.

Here is the trade, looking at the option pricing the night before the start date of the trade. Keep in mind that the option could be higher or lower on the open of that trade date.

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The price shown to open is what is called the mid-price, or the price one can try and buy in the spread (the difference between the bid and the ask price of the option).

Look at the chart below to see how far the stock went down in price:

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The trade immediately gapped up in price. The trade management rule is to watch and evaluate ending the trade if it reaches a 50% loss in value. The value of the options trade never made it to a 50% loss, so the trade had a chance to work to the downside before stopping out.

And to the downside it went!

The target price to the downside was $38.17. It did not quite hit that price before I decided to consider the trade closed. It still produced a solid ROI, even if I did decide to end this prior to the target price. The reason I stopped this trade was that an earnings report was slated to come out the day after when I chose to end the trade.

Earnings reports, as you know, can affect an options trade either for good or bad. I have seen and had both good and bad experiences with earnings over my years as a trader. This case study worked, and the last thing I wanted to do was risk giving back any or all of the profits achieved because of the earnings or because of traders’ reaction to the earnings.

Let’s Jump for JOY With Our 53% Return!

The cost or risk in the trade originally presented is -$3.93. Looking at the mid-price on the JOY June15 45P, the case study shows a profit potential of +$2.07 or +$207 per contract.

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The return on investment or ROI on this case study scenario comes out to a +52.7% (+53%) ROI.

The compulsion once the trade is off is to still track it and see if you could have made more money if you just held on. I would encourage you to focus on your existing trades and/or look for upcoming new trades instead.

One thing that could happen is the stock drops even further after the earnings and you kick yourself, thinking you should have held on.

The next time you face this situation you could end up talking yourself into hanging on through earnings… but then they could disappoint, and wipe out your trade.

Experience the JOY of this trade and focus on existing and upcoming trades!

Until next time,

15 Responses to “This is What I Consider a JOY-ous Return on Investment”


    YOU DONT SAY HOW MUCH YOU INVEST IN A TRADE, In your sales pitch you kept the investment figures in the low hundreds. unless you are going to send more explanatory notes re: such, I have no clue how far to go. I have lost so much on options taking others advice, I have to be awful careful or I will surely outlive my savings.
    Thank You and here’s hoping, Robert T.

  2. Hi Tom,
    Your presentations are lucid and informative.
    I admit I did have to spend some time getting my head around it.
    I am thinking about subscribing to your service – can you advise of any good UK trading platforms for options.

  3. Ronnie Deniger

    I just joined about 2 weeks ago and have not had the opportunity to get in any play. My trading account is in a retirement plan and I can only sell covered calls and cannot use margins to place trades. Is this still a good service for me or should I consider getting out due to the limits of my sep ira?

  4. I am slowly learning be reading all you are showing us. I make time each day to learn. I put funds into the TD Ameritrade Acct and I am learning how to make a trade. Aloha, Roy

  5. I understand the vertical split that you are suggesting but Scottrade does not offer the service to make of this type of option trade. When you are recommending this type of option, can you also recommend a single option recommendation for the same company.

  6. Jack Beloshapka

    I am new to option trades, although I have read about how to trade them, but never made the move due to not fully understanding the movement relationship to the stock and the outside influences. Thank you for this education. I have not made any trade as of yet, still trying to learn from you. I have opened a brokerage account with option trade approval.

  7. Excellent article. The best advice is to forget the trade once you are out. I still have a hard time doing that because if the stock turns around the next day you are thinking “I am a genius” and if it keeps going and you would have make more money you feel disappointed. It is the emotions that kick in and emotions need to be eliminated when trading. Hard to do but if you look at it as being happy with what you got then it helps. Losses are the same way. If it is time to pull the plug and take a loss don’t look back just look for something else. Watching the trade after the execution will play havoc with your emotions.

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