Chuck's T​ip's of the ​Day and Video Blog

*Tip of the Day does not reflect current trades; it is strictly for informational purposes. To receive Chuck Hughes handpicked trades as they happen, call 866-661-5664 or www.chuckhughesonline.com.

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December 1st, 2022

Profit From MODV’s Decline?

Yesterday, we looked at a Daily Price Chart of The Buckle, Inc., noting the stock’s 24/52 Day MACD is trading above the 18-Day EMA signaling a ‘Buy’.

For today’s Trade of the Day e-letter we will be looking at a daily price chart for ModivCare Inc. stock symbol: MODV.

Before breaking down MODV’s daily chart let’s first review what products and services the company offers.

ModivCare Inc., a technology-enabled healthcare services company, provides a suite of integrated supportive care solutions for public and private payors and patients. The company operates through four segments: Non-Emergency Medical Transportation (NEMT), Personal Care, Remote Patient Monitoring (RPM), and the Matrix Investment. The NEMT segment offers contact center management, network credentialing, claims management, and non-emergency medical transport management services for Medicaid or Medicare eligible members, whose limited mobility or financial resources hinder their ability to access necessary healthcare and social services.

Now, let’s begin to break down the Daily Price chart for MODV stock.

Below is a Daily Price chart with the 50-Day EMA and 100-Day EMA for MODV.

50-Day EMA and 100-Day EMA ‘Sell’ Signal

The 50-Day Exponential Moving Average (EMA) and 100-Day EMA are moving average indicator lines that can provide buy and sell signals when used together. When the shorter-term 50-Day EMA crosses above or below the longer-term 100-Day EMA, this provides either a buy or sell signal depending on which direction the stock price is moving.

  • 50-Day EMA line Above 100-Day EMA = Price Uptrend = Buy signal
  • 50 Day EMA line Below 100-Day EMA = Price Downtrend = Sell signal

When the 50-Day EMA (blue line) crosses above the 100-Day EMA (red line) this indicates that the stock’s buying pressure has begun to outweigh the selling pressure signaling a ‘buy’ signal. When the 50-Day EMA crosses below the 100-Day EMA this indicates that the selling pressure has begun to outweigh the buying pressure signaling a ‘sell’ signal.

Sell MODV Stock

As the chart shows, on September 23rd, 2022, the MODV 50-Day EMA, crossed below the 100-Day EMA.

This crossover indicated the selling pressure for MODV stock exceeded the buying pressure. For this kind of crossover to occur, a stock has to be in a strong bearish trend.

Now, as you can see, the 50-Day EMA is still below the 100-Day EMA meaning the ‘sell’ signal is still in play.

As long as the 50-Day EMA remains below the 100-Day EMA, the stock is more likely to keep trading at new lows and bearish positions should be initiated.

Our initial price target for MODV stock is 67.50 per share.

Profit if MODV is Down, Up, or Flat

Now, since MODV’s 50-Day EMA is trading below the 100-Day EMA, the stock will likely continue its trend downward. Let’s use the Hughes Optioneering calculator to look at the potential returns for a MODV put option spread.

The Put Option Spread Calculator will calculate the profit/loss potential for a put option spread based on the price change of the underlying stock/ETF at option expiration in this example from a 7.5% decrease to a 7.5% increase in MODV stock at option expiration.

The goal of this example is to demonstrate the ‘built in’ profit potential for option spreads and the ability of spreads to profit if the underlying stock is down, up, or flat at option expiration. Out of fairness to our paid option service subscribers we don’t list the option strike prices used in the profit/loss calculation.

The prices and returns represented below were calculated based on the current stock and option pricing for MODV on 12/1/2022 before commissions.

Built in Profit Potential

For this option spread, the calculator analysis below reveals the cost of the spread is $330 (circled). The maximum risk for an option spread is the cost of the spread.

The analysis reveals that if MODV stock is flat or down at all at expiration the spread will realize a 51.5% return (circled). 

And if MODV stock increases 7.5% at option expiration, the option spread would make a 51.5% return (circled). 

Due to option pricing characteristics, this option spread has a ‘built in’ 51.5% profit potential when the trade was identified*.

Option spread trades can result in a higher percentage of winning trades compared to a directional option trade if you can profit when the underlying stock/ETF is up, down or flat.

A higher percentage of winning trades can give you the discipline needed to become a successful trader.

The Hughes Optioneering Team is here to help you identify profit opportunities just like this one.

Interested in accessing the Optioneering Calculators? Join one of Chuck's Trading Services for unlimited access! The Optioneering Team has option calculators for six different option strategies that allow you to calculate the profit potential for an option trade before you take the trade.

 *Trading incurs risk and some people lose money trading.

November 29th, 2022

Strong Upward Momentum for GILD

Yesterday, we looked at a Monthly Price Chart of Charles Schwab Corp., noting the stock’s 1-Month Price is trading above the 10-Month SMA signaling a ‘Buy’.

For today’s Trade of the Day we will be looking at an On Balance Volume chart for Gilead Sciences, Inc. stock symbol: GILD.

Before breaking down GILD’s OBV chart let’s first review which products and services are offered by the company.

Gilead Sciences, Inc., a biopharmaceutical company, discovers, develops, and commercializes medicines in the areas of unmet medical need in the United States, Europe, and internationally. The company provides Biktarvy, Genvoya, Descovy, Odefsey, Truvada, Complera/ Eviplera, Stribild, and Atripla products for the treatment of HIV/AIDS; Veklury, an injection for intravenous use, for the treatment of coronavirus disease 2019; and Epclusa, Harvoni, Vosevi, Vemlidy, and Viread for the treatment of liver diseases.

Confirming a Price Uptrend with OBV

The GILD daily price chart below shows that GILD is in a price uptrend as the current price is above the price GILD traded at five months ago (circled). The On Balance Volume chart is below the daily chart.

On Balance Volume measures volume flow with a single Easy-to-Read Line. Volume flow precedes price movement and helps sustain the price downtrend. When a stock closes up, volume is added to the line. When a stock closes down, volume is subtracted from the line. A cumulative total of these additions and subtractions form the OBV line.

On Balance Volume Indicator

● When Close is Up, Volume is Added

● When Close is Down, Volume is Subtracted

● A Cumulative Total of Additions and Subtractions form the OBV Line

Volume flow precedes price and is the key to measuring the validity and sustainability of a price trend. 

We can see from the OBV chart below that the On Balance Volume line for GILD is sloping up. An up-sloping line indicates that the volume is heavier on up days and buying pressure is exceeding selling pressure. Buying pressure must continue to exceed selling pressure in order to sustain a price uptrend. So, On Balance Volume is a simple indicator to use that confirms the price uptrend and its sustainability.

The numerical value of the On Balance Volume line is not important. We simply want to see an up-sloping line to confirm a price uptrend.

Confirmed ‘Buy’ Signal for GILD

Since GILD's OBV line is sloping up, the most likely future price movement for GILD is up, making GILD a good candidate for a stock purchase or a call option purchase.

Let's use the Hughes Optioneering calculator to look at the potential returns for a GILD call option purchase.

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

The Optioneering Team uses the 1% Rule to select an option strike price with a higher percentage of winning trades. In the following GILD option example, we used the 1% Rule to select the GILD 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 a GILD in-the-money option strike price, GILD stock only has to increase 1% for the option to breakeven and start profiting! Remember, if you purchase an at-the-money or out-of-the-money call 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 GILD stock is flat at 85.23 at option expiration, it will only result in a 3.0% loss for the GILD option compared to a 100% loss for an at-the-money or out-of-the-money call 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 call 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 GILD on 11/29/2022 before commissions.

When you purchase a call option, there is no limit on the profit potential of the call if the underlying stock continues to move up in price.

For this specific call option, the calculator analysis below reveals if GILD stock increases 5.0% at option expiration to 89.49 (circled), the call option would make 54.2% before commission. 

If GILD stock increases 10.0% at option expiration to 93.75 (circled), the call option would make 111.4% before commission and outperform the stock return more than 11 to 1*. 

The leverage provided by call options allows you to maximize potential returns on bullish stocks.

The Hughes Optioneering Team is here to help you identify profit opportunities just like this one.

Interested in accessing the Optioneering Calculators? Join one of Chuck's Trading Services for unlimited access! The Optioneering Team has option calculators for six different option strategies that allow you to calculate the profit potential for an option trade before you take the trade.

*Trading incurs risk and some people lose money trading.

 

November 22nd, 2022

EMCOR Group Signals ‘Buy’

Yesterday, we looked at a Monthly Price Chart of Cloudflare Inc., noting that the stock’s 1-Month Price is trading below the 10-Month SMA signaling a ‘Sell’.

For today’s Trade of the Day e-letter we will be looking at a Moving Average Convergence/ Divergence (MACD) chart for EMCOR Group, Inc. stock symbol: EME.

Before breaking down EME’s MACD chart let’s first review what products and services the company offers.

EMCOR Group, Inc. provides electrical and mechanical construction, and facilities services primarily in the United States and the United Kingdom. It offers design, integration, installation, starts-up, operation, and maintenance services related to electrical power transmission, distribution, and generation systems; energy solutions; premises electrical and lighting systems; process instrumentation in the refining, chemical processing, and food processing industries; low-voltage systems, such as fire alarm, security, and process control systems, and more.   

MACD Indicator confirms Price Momentum

The EME daily price chart below shows that EME is in a price uptrend as the 24/52 day MACD line (black line) is above the 18-Day EMA (purple line). The Moving Average Convergence/ Divergence chart is shown below the daily price chart.

MACD uses moving averages to create a momentum indicator by subtracting the longer-term moving average from the shorter-term moving average. The MACD is calculated by subtracting a stock’s longer term 52-Day Exponential Moving Average (EMA) from its shorter term 24-Day EMA. This creates the MACD line.

MACD ‘Buy’ Signal

The 18-Day EMA line functions as a buy/sell ‘trigger’. When the 24/52 Day MACD line crosses above the 18-Day EMA line it indicates positive momentum and higher prices for the stock. When the 24/52 Day MACD lines crosses below the 18-Day EMA it indicates negative momentum and lower prices for the stock. MACD is more of a leading indicator than a moving average cross over which tends to lag price movement.

MACD Histogram shows Acceleration of Momentum

Also included in a MACD chart is the histogram bar graph. This portion of the chart helps to illustrate the distance between the 24/52 Day MACD and the 18-Day EMA.

When a crossover initially occurs, the histogram’s bar will be near flat as the two indicator lines have converged. As the lines begin to separate, the bars grow in height, indicating a widening gap and acceleration for the stock’s momentum. When the histogram’s bars begin to shrink this indicates a narrowing of the gap between the 24/52 Day MACD and the 18-Day EMA and a slowing of the stock’s momentum. When the gap between the two indicators begins to narrow, this typically indicates a crossover of the indicator lines could happen soon.

 

Buy EME Stock

As long as the 24/52 Day MACD line remains above the 18-Day EMA, the stock is more likely to keep trading at new highs in the coming days and weeks.

Since EME’s bullish run is likely to continue, the stock should be purchased.

Our initial price target for EME stock is 162.00 per share.

86.6% Profit Potential for EME Option

Now, since EME’s 24/52 Day MACD is trading above the 18-Day EMA this means the stock’s bullish rally will likely continue. Let’s use the Hughes Optioneering calculator to look at the potential returns for an EME call option purchase.

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

The Optioneering Team uses the 1% Rule to select an option strike price with a higher percentage of winning trades. In the following EME option example, we used the 1% Rule to select the EME 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 EME in-the-money option strike price, EME stock only has to increase 1% for the option to breakeven and start profiting! Remember, if you purchase an at-the-money or out-of-the-money call 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 EME stock is flat at 154.76 at option expiration, it will only result in an 8.9% loss for the EME option compared to a 100% loss for an at-the-money or out-of-the-money call 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 call 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 EME on 11/21/2022 before commissions.

When you purchase a call option, there is no limit on the profit potential of the call if the underlying stock continues to move up in price.

For this specific call option, the calculator analysis below reveals if EME stock increases 5.0% at option expiration to 162.50 (circled), the call option would make 38.9% before commission. 

If EME stock increases 10.0% at option expiration to 170.24 (circled), the call option would make 86.6% before commission and outperform the stock return nearly 9 to 1*. 

The leverage provided by call options allows you to maximize potential returns on bullish stocks.

The Hughes Optioneering Team is here to help you identify profit opportunities just like this one.

 

Interested in accessing the Optioneering Calculators? Join one of Chuck's Trading Services for unlimited access! The Optioneering Team has option calculators for six different option strategies that allow you to calculate the profit potential for an option trade before you take the trade.

 
*Trading incurs risk and some people lose money trading.

 

November 17th, 2022

Defined ‘Sell’ Signal for Airbnb

Yesterday, we looked at a Daily Price Chart for Hess Corp. noting that the stock’s 24/52 Day MACD is trading above the 18-Day EMA signaling a ‘Buy’.

For today’s Trade of the Day e-letter we will be looking at a daily price chart for Airbnb Inc. stock symbol: ABNB.

Before breaking down ABNB’s daily chart let’s first review what products and services the company offers.

Airbnb, Inc., together with its subsidiaries, operates a platform that enables hosts to offer stays and experiences to guests worldwide. The company's marketplace model connects hosts and guests online or through mobile devices to book spaces and experiences. It primarily offers private rooms, primary homes, or vacation homes. 

Now, let’s begin to break down the Daily Price chart for ABNB stock.

Below is a Daily Price chart with the 50-Day EMA and 100-Day EMA for ABNB.

 

50-Day EMA and 100-Day EMA ‘Sell’ Signal

The 50-Day Exponential Moving Average (EMA) and 100-Day EMA are moving average indicator lines that can provide buy and sell signals when used together. When the shorter-term 50-Day EMA crosses above or below the longer-term 100-Day EMA, this provides either a buy or sell signal depending on which direction the stock price is moving.

  • 50-Day EMA line Above 100-Day EMA = Price Uptrend = Buy signal
  • 50 Day EMA line Below 100-Day EMA = Price Downtrend = Sell signal

 

When the 50-Day EMA (blue line) crosses above the 100-Day EMA (red line) this indicates that the stock’s buying pressure has begun to outweigh the selling pressure signaling a ‘buy’ signal. When the 50-Day EMA crosses below the 100-Day EMA this indicates that the selling pressure has begun to outweigh the buying pressure signaling a ‘sell’ signal.

Sell ABNB Stock

As the chart shows, on January 20th, the ABNB 50-Day EMA, crossed below the 100-Day EMA.

This crossover indicated the selling pressure for ABNB stock exceeded the buying pressure. For this kind of crossover to occur, a stock has to be in a strong bearish trend.

Now, as you can see, the 50-Day EMA is still below the 100-Day EMA meaning the ‘sell’ signal is still in play.

As long as the 50-Day EMA remains below the 100-Day EMA, the stock is more likely to keep trading at new lows and bearish positions should be initiated.

Our initial price target for ABNB stock is 93.00 per share.

Profit if ABNB is Down, Up, or Flat

Now, since ABNB’s 50-Day EMA is trading below the 100-Day EMA, the stock will likely continue its trend downward. Let’s use the Hughes Optioneering calculator to look at the potential returns for an ABNB put option spread.

The Put Option Spread Calculator will calculate the profit/loss potential for a put option spread based on the price change of the underlying stock/ETF at option expiration in this example from a 10.0% decrease to a 10.0% increase in ABNB stock at option expiration.

The goal of this example is to demonstrate the ‘built in’ profit potential for option spreads and the ability of spreads to profit if the underlying stock is down, up, or flat at option expiration. Out of fairness to our paid option service subscribers we don’t list the option strike prices used in the profit/loss calculation.

The prices and returns represented below were calculated based on the current stock and option pricing for ABNB on 11/16/2022 before commissions.

Built in Profit Potential

For this option spread, the calculator analysis below reveals the cost of the spread is $328 (circled). The maximum risk for an option spread is the cost of the spread.

The analysis reveals that if ABNB stock is flat or down at all at expiration the spread will realize a 52.4% return (circled). 

And if ABNB stock increases 10.0% at option expiration, the option spread would make a 48.9% return (circled). 

Due to option pricing characteristics, this option spread has a ‘built in’ 52.4% profit potential when the trade was identified*.

Option spread trades can result in a higher percentage of winning trades compared to a directional option trade if you can profit when the underlying stock/ETF is up, down or flat.

A higher percentage of winning trades can give you the discipline needed to become a successful trader.

The Hughes Optioneering Team is here to help you identify profit opportunities just like this one.

 

Interested in accessing the Optioneering Calculators? Join one of Chuck's Trading Services for unlimited access! The Optioneering Team has option calculators for six different option strategies that allow you to calculate the profit potential for an option trade before you take the trade.

November 15th, 2022

HAS Stock Making Fresh Lows

 Yesterday, we looked at a Monthly Price Chart of Goldman Sachs Group, Inc. noting the stock’s 1-Month Price is trading above the 10-Month SMA signaling a ‘Buy’.

For today’s Trade of the Day we will be looking at a Daily Price chart for Hasbro, Inc. stock symbol: HAS.

Before breaking down HAS’s daily price chart let’s first review which products and services are offered by the company.

Hasbro, Inc., together with its subsidiaries, operates as a play and entertainment company. Its Consumer Products segment engages in the sourcing, marketing, and sale of toy and game products. This segment also promotes its brands through the out-licensing of trademarks, characters, and other brand and intellectual property rights to third parties through the sale of branded consumer products, such as toys and apparels. 

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

 

Sell HAS Stock

The Daily Price chart above shows that HAS stock has been hitting new 52-Week Lows regularly over the past month.

Simply put, a stock does not just continually hit a series of new 52-Week Lows unless it is in a very strong bearish trend.

The Hughes Optioneering team looks for stocks that are making a series of 52-Week Lows as this is a good indicator that the stock is in a powerful downtrend.

You see, after a stock makes a series of two or more 52-Week Lows, the stock typically continues its price downtrend and bearish positions should be initiated.

Our initial price target for HAS stock is 53.50 per share.

 

 

90.6% Profit Potential for HAS Option

Now, since HAS stock is currently making a series of new 52-Week 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 a HAS 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 HAS 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 HAS option example, we used the 1% Rule to select the HAS 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 a HAS in-the-money option strike price, HAS stock only has to decrease 1% for the option to breakeven 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 HAS stock is flat at 57.16 at option expiration, it will only result in a 7.9% loss for the HAS 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 HAS on 11/14/2022 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 HAS stock decreases 5.0% at option expiration to 54.30 (circled), the put option would make 41.3% before commission. 

If HAS stock decreases 10.0% at option expiration to 51.44 (circled), the put option would make 90.6% before commission and would greatly outperform the stock’s return*. 

The leverage provided by put options allows you to maximize potential returns on bearish stocks.

The Hughes Optioneering Team is here to help you identify profit opportunities just like this one.

 

Interested in accessing the Optioneering Calculators? Join one of Chuck's Trading Services for unlimited access! The Optioneering Team has option calculators for six different option strategies that allow you to calculate the profit potential for an option trade before you take the trade.

 *Trading incurs risk and some people lose money trading.

 

November 10th, 2022

Defined Downtrend for SWKS

Yesterday, we looked at a Daily Price Chart for Unity Software Inc., noting that the stock OBV line is sloping down, validating U’s recent downtrend.

For today’s Trade of the Day e-letter we will be looking at a daily price chart for Skyworks Solutions Inc. stock symbol: SWKS.

Before breaking down SWKS’s daily chart let’s first review what products and services the company offers.

Skyworks Solutions, Inc., together with its subsidiaries, designs, develops, manufactures, and markets proprietary semiconductor products in the United States and internationally. Its product portfolio includes amplifiers, antenna tuners, attenuators, automotive tuners and digital radios, clocks and timings, circulators/isolators, DC/DC converters, demodulators, detectors, diodes, wireless analog system on chip products, and more 

Now, let’s begin to break down the Daily Price chart for SWKS stock. Below is a Daily Price chart with the 50-Day EMA and 100-Day EMA for SWKS.

 

50-Day EMA and 100-Day EMA ‘Sell’ Signal

The 50-Day Exponential Moving Average (EMA) and 100-Day EMA are moving average indicator lines that can provide buy and sell signals when used together. When the shorter-term 50-Day EMA crosses above or below the longer-term 100-Day EMA, this provides either a buy or sell signal depending on which direction the stock price is moving.

  • 50-Day EMA line Above 100-Day EMA = Price Uptrend = Buy signal
  • 50 Day EMA line Below 100-Day EMA = Price Downtrend = Sell signal

 

When the 50-Day EMA (blue line) crosses above the 100-Day EMA (red line) this indicates that the stock’s buying pressure has begun to outweigh the selling pressure signaling a ‘buy’ signal. When the 50-Day EMA crosses below the 100-Day EMA this indicates that the selling pressure has begun to outweigh the buying pressure signaling a ‘sell’ signal.

Sell SWKS Stock

As the chart shows, on September 29th, 2021, the SWKS 50-Day EMA, crossed below the 100-Day EMA.

This crossover indicated the selling pressure for SWKS stock exceeded the buying pressure. For this kind of crossover to occur, a stock has to be in a strong bearish trend.

Now, as you can see, the 50-Day EMA is still below the 100-Day EMA meaning the ‘sell’ signal is still in play.

As long as the 50-Day EMA remains below the 100-Day EMA, the stock is more likely to keep trading at new lows and bearish positions should be initiated.

Our initial price target for SWKS stock is 81.25 per share.

 

 

83.8% Profit Potential for SWKS Option

Now, since SWKS stock’s 50-Day EMA is trading below the 100-Day EMA this means the stock’s bearish decline will likely continue. Let’s use the Hughes Optioneering calculator to look at the potential returns for a SWKS 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 SWKS 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 SWKS option example, we used the 1% Rule to select the SWKS 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 a SWKS in-the-money option strike price, SWKS stock only has to decrease 1% for the option to breakeven 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 SWKS stock is flat at 85.55 at option expiration, it will only result in an 8.6% loss for the SWKS 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 SWKS on 11/9/2022 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 SWKS stock decreases 5.0% at option expiration to 81.27 (circled), the put option would make 37.6% before commission. 

If SWKS stock decreases 10.0% at option expiration to 77.00 (circled), the put option would make 83.8% before commission and would greatly outperform the stock*. 

The leverage provided by put options allows you to maximize potential returns on bearish stocks.

The Hughes Optioneering Team is here to help you identify profit opportunities just like this one.

 

Interested in accessing the Optioneering Calculators? Join one of Chuck's Trading Services for unlimited access! The Optioneering Team has option calculators for six different option strategies that allow you to calculate the profit potential for an option trade before you take the trade.

*Trading incurs risk and some people lose money trading.

 

November 8th, 2022

Strong Upward Momentum for XOM

Yesterday, we looked at a Monthly Price Chart for General Dynamics Corp., noting that the stock’s 1-Month Price is trading above the 10-Month SMA.

For today’s Trade of the Day e-letter we will be looking at a Moving Average Convergence/ Divergence (MACD) chart for Exxon Mobil Corp. stock symbol: XOM.

Before breaking down XOM’s MACD chart let’s first review what products and services the company offers.

Exxon Mobil Corporation explores for and produces crude oil and natural gas in the United States and internationally. It operates through Upstream, Downstream, and Chemical segments. The company is also involved in the manufacture, trade, transport, and sale of crude oil, natural gas, petroleum products, petrochemicals, and other specialty products; manufactures and sells petrochemicals, including olefins, polyolefins, aromatics, and various other petrochemicals; and captures and stores carbon, hydrogen, and biofuels.   

MACD Indicator confirms Price Momentum

The XOM daily price chart below shows that XOM is in a price uptrend as the 24/52 day MACD line (black line) is above the 18-Day EMA (purple line). The Moving Average Convergence/ Divergence chart is shown below the daily price chart.

MACD uses moving averages to create a momentum indicator by subtracting the longer-term moving average from the shorter-term moving average. The MACD is calculated by subtracting a stock’s longer term 52-Day Exponential Moving Average (EMA) from its shorter term 24-Day EMA. This creates the MACD line.

MACD ‘Buy’ Signal

The 18-Day EMA line functions as a buy/sell ‘trigger’. When the 24/52 Day MACD line crosses above the 18-Day EMA line it indicates positive momentum and higher prices for the stock. When the 24/52 Day MACD lines crosses below the 18-Day EMA it indicates negative momentum and lower prices for the stock. MACD is more of a leading indicator than a moving average cross over which tends to lag price movement.

MACD Histogram shows Acceleration of Momentum

Also included in a MACD chart is the histogram bar graph. This portion of the chart helps to illustrate the distance between the 24/52 Day MACD and the 18-Day EMA.

When a crossover initially occurs, the histogram’s bar will be near flat as the two indicator lines have converged. As the lines begin to separate, the bars grow in height, indicating a widening gap and acceleration for the stock’s momentum. When the histogram’s bars begin to shrink this indicates a narrowing of the gap between the 24/52 Day MACD and the 18-Day EMA and a slowing of the stock’s momentum. When the gap between the two indicators begins to narrow, this typically indicates a crossover of the indicator lines could happen soon.

 

Buy XOM Stock

As long as the 24/52 Day MACD line remains above the 18-Day EMA, the stock is more likely to keep trading at new highs in the coming days and weeks.

Since XOM’s bullish run is likely to continue, the stock should be purchased.

Our initial price target for XOM stock is 120.00 per share.

 

Profit if XOM is Up, Down or Flat

Now, since XOM’s 24/52 Day MACD is trading above the 18-Day EMA and will likely rally from here, let’s use the Hughes Optioneering calculator to look at the potential returns for a XOM call option spread.

The Call Option Spread Calculator will calculate the profit/loss potential for a call option spread based on the price change of the underlying stock/ETF at option expiration in this example from a 7.5% increase to a 7.5% decrease in XOM stock at option expiration.

The goal of this example is to demonstrate the ‘built in’ profit potential for option spreads and the ability of spreads to profit if the underlying stock is up, down or flat at option expiration. Out of fairness to our paid option service subscribers we don’t list the option strike prices used in the profit/loss calculation.

The prices and returns represented below were calculated based on the current stock and option pricing for XOM on 11/7/2022 before commissions.

Built in Profit Potential

For this option spread, the calculator analysis below reveals the cost of the spread is $333 (circled). The maximum risk for an option spread is the cost of the spread.

The analysis reveals that if XOM stock is flat or up at all at expiration the spread will realize a 50.2% return (circled). 

And if XOM stock decreases 7.5% at option expiration, the option spread would make a 50.2% return (circled). 

Due to option pricing characteristics, this option spread has a ‘built in’ 50.2% profit potential when the trade was identified*.

Option spread trades can result in a higher percentage of winning trades compared to a directional option trade if you can profit when the underlying stock/ETF is up, down or flat.

A higher percentage of winning trades can give you the discipline needed to become a successful trader. 

The Hughes Optioneering Team is here to help you identify profit opportunities just like this one.

 

Interested in accessing the Optioneering Calculators? Join one of Chuck's Trading Services for unlimited access! The Optioneering Team has option calculators for six different option strategies that allow you to calculate the profit potential for an option trade before you take the trade.

*Trading incurs risk and some people lose money trading.

**Inner Circle trading program provides training package and specific trade signals for one year. First 10 people to sign up each day this offer is valid will get a waiver of the standard fee, which is the price charged to anyone signing up after the first 10 people per day. Additional costs apply to different programs.


 

November 3rd, 2022

JD Shares in the ‘Sell Zone’

On November 3rd, we looked at a Daily Price Chart of Metlife, Inc., noting the stock’s 24/52 Day MACD line is above the 18-Day EMA signaling a bullish stock.

For today’s Trade of the Day we will be looking at a Keltner Channel chart for JD.com, Inc. stock symbol: JD.

Before breaking down JD’s daily Keltner Channel chart let’s first review which products and services are offered by the company.

JD.com, Inc. provides supply chain-based technologies and services in the People's Republic of China. The company offers computers, communication, and consumer electronics products, as well as home appliances; and general merchandise products comprising food, beverage and fresh produce, baby and maternity products, furniture and household goods, cosmetics and other personal care items, pharmaceutical and healthcare products, books, automobile accessories, apparel and footwear, bags, and jewelry.

Now, let’s begin to break down the Keltner Channel chart for JD. Below is a Daily Price Chart and the three Keltner Channels for JD stock.

 

Sell JD Stock

The Hughes Optioneering Team uses the Keltner Channels as an indicator to determine whether a stock is overbought or oversold. If a stock’s daily stock price is trading below the lower Keltner Channel, this signals that the stock is temporarily oversold and subject to a rebound.

Even stocks that are in the strongest bearish trends do not decline in a straight line. There are always price rebounds along the way. When a stock becomes oversold, it’s price will typically rebound soon after as the inevitable buying the dip occurs.

The JD daily price chart shows that the stock is in a strong price decline and has become oversold several times. You can see this as JD has traded below the Lower Keltner Channel on multiple occasions recently.

But, in every scenario when JD became oversold, the stock soon experienced a price rebound.

Finding opportunities when a stock experiences a price rebound is why the Hughes Optioneering Team uses the Keltner Channels. They help us find a lower-risk entry point for our bearish trades.

The Keltner Channel “Sell Zone” occurs when a stock is trading above the lower Keltner Channel. Once the daily price is trading above the lower channel, it provides a lower-risk buying opportunity for bearish trades as the stock is likely to decline further.

Our initial price target for JD stock is 36.00 per share.

Profit if JD is Down, Up, or Flat

Now, since JD is trading above the lower Keltner Channel, this provides us with a prime bearish trade entry opportunity. Let’s use the Hughes Optioneering calculator to look at the potential returns for a JD put option spread.

The Put Option Spread Calculator will calculate the profit/loss potential for a put option spread based on the price change of the underlying stock/ETF at option expiration in this example from a 10.0% decrease to a 10.0% increase in JD stock at option expiration.

The goal of this example is to demonstrate the ‘built in’ profit potential for option spreads and the ability of spreads to profit if the underlying stock is down, up, or flat at option expiration. Out of fairness to our paid option service subscribers we don’t list the option strike prices used in the profit/loss calculation.

The prices and returns represented below were calculated based on the current stock and option pricing for JD on 11/2/2022 before commissions.

Built in Profit Potential

For this option spread, the calculator analysis below reveals the cost of the spread is $327 (circled). The maximum risk for an option spread is the cost of the spread.

The analysis reveals that if JD stock is flat or down at all at expiration the spread will realize a 52.9% return (circled). 

And if JD stock increases 10.0% at option expiration, the option spread would make a 12.4% return (circled). 

Due to option pricing characteristics, this option spread has a ‘built in’ 52.9% profit potential when the trade was identified*.

Option spread trades can result in a higher percentage of winning trades compared to a directional option trade if you can profit when the underlying stock/ETF is up, down or flat.

A higher percentage of winning trades can give you the discipline needed to become a successful trader.

The Hughes Optioneering Team is here to help you identify profit opportunities just like this one.

 

Interested in accessing the Optioneering Calculators? Join one of Chuck's Trading Services for unlimited access! The Optioneering Team has option calculators for six different option strategies that allow you to calculate the profit potential for an option trade before you take the trade.

*Trading incurs risk and some people lose money trading.

November 1st, 2022

Inflow of Buying Pressure for ERIE

Yesterday, we looked at a Monthly Price Chart of Cross Country Healthcare, Inc. noting the stock’s 1-Month Price is trading above the 10-Month SMA signaling a ‘Buy’.

For today’s Trade of the Day we will be looking at an On Balance Volume chart for Erie Indemnity Co. stock symbol: ERIE.

Before breaking down ERIE’s OBV chart let’s first review which products and services are offered by the company.

Erie Indemnity Company operates as a managing attorney-in-fact for the subscribers at the Erie Insurance Exchange in the United States. The company provides sales, underwriting, policy issuance, and renewal services for the policyholders on behalf of the Erie Insurance Exchange. It also offers sales related services, including agent compensation, and sales and advertising support services; and underwriting services comprise underwriting and policy processing; and other services consist of customer services and administrative support services, as well as information technology services.

Confirming a Price Uptrend with OBV

The ERIE daily price chart below shows that ERIE is in a price uptrend as the current price is above the price ERIE traded at six months ago (circled). The On Balance Volume chart is below the daily chart.

On Balance Volume measures volume flow with a single Easy-to-Read Line. Volume flow precedes price movement and helps sustain the price downtrend. When a stock closes up, volume is added to the line. When a stock closes down, volume is subtracted from the line. A cumulative total of these additions and subtractions form the OBV line.

On Balance Volume Indicator

● When Close is Up, Volume is Added

● When Close is Down, Volume is Subtracted

● A Cumulative Total of Additions and Subtractions form the OBV Line

Volume flow precedes price and is the key to measuring the validity and sustainability of a price trend. 

We can see from the OBV chart below that the On Balance Volume line for ERIE is sloping up. An up-sloping line indicates that the volume is heavier on up days and buying pressure is exceeding selling pressure. Buying pressure must continue to exceed selling pressure in order to sustain a price uptrend. So, On Balance Volume is a simple indicator to use that confirms the price uptrend and its sustainability.

The numerical value of the On Balance Volume line is not important. We simply want to see an up-sloping line to confirm a price uptrend.

 

Confirmed ‘Buy’ Signal for ERIE

Since ERIE's OBV line is sloping up, the most likely future price movement for ERIE is up, making ERIE a good candidate for a stock purchase or a call option purchase.

Let's use the Hughes Optioneering calculator to look at the potential returns for an ERIE call option.

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

The Optioneering Team uses the 1% Rule to select an option strike price with a higher percentage of winning trades. In the following ERIE option example, we used the 1% Rule to select the ERIE 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 ERIE in-the-money option strike price, ERIE stock only has to increase 1% for the option to breakeven and start profiting! Remember, if you purchase an at-the-money or out-of-the-money call 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 ERIE stock is flat at 257.01 at option expiration, it will only result in a 12.3% loss for the ERIE option compared to a 100% loss for an at-the-money or out-of-the-money call 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 call 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 ERIE on 10/31/2022 before commissions.

When you purchase a call option, there is no limit on the profit potential of the call if the underlying stock continues to move up in price.

For this specific call option, the calculator analysis below reveals if ERIE stock increases 5.0% at option expiration to 269.86 (circled), the call option would make 53.9% before commission. 

If ERIE stock increases 10.0% at option expiration to 282.71 (circled), the call option would make 120.2% before commission and outperform the stock return more than 12 to 1*. 

The leverage provided by call options allows you to maximize potential returns on bullish stocks.

The Hughes Optioneering Team is here to help you identify profit opportunities just like this one.

 

Interested in accessing the Optioneering Calculators? Join one of Chuck's Trading Services for unlimited access! The Optioneering Team has option calculators for six different option strategies that allow you to calculate the profit potential for an option trade before you take the trade.

*Trading incurs risk and some people lose money trading.

**Inner Circle trading program provides training package and specific trade signals for one year. First 10 people to sign up each day this offer is valid will get a waiver of the standard fee, which is the price charged to anyone signing up after the first 10 people per day. Additional costs apply to different programs.

 

November 1, 2022

Optioneering Video from October 16 2022

October 27th, 2022

Selling Pressure Drives Qualcomm Downward

Yesterday, we looked at a Daily Price Chart of Toll Brothers, Inc. noting that the stock’s 50-Day EMA is trading below the 100-Day EMA signaling a ‘Sell’.

For today’s Trade of the Day we will be looking at an On Balance Volume chart for QUALCOMM Inc. stock symbol: QCOM.

Before breaking down QCOM’s OBV chart let’s first review which products and services are offered by the company.

QUALCOMM Incorporated engages in the development and commercialization of foundational technologies for the wireless industry worldwide. The company operates through three segments: Qualcomm CDMA Technologies; Qualcomm Technology Licensing; and Qualcomm Strategic Initiatives. The QCT segment develops and supplies integrated circuits and system software based on 3G/4G/5G and other technologies for use in wireless voice and data communications, networking, application processing, multimedia, and global positioning system products.

Confirming a Price Downtrend with OBV

The QCOM daily price chart below shows that QCOM is in a price downtrend as the current price is below the price QCOM traded at five months ago (circled). The On Balance Volume chart is below the daily chart.

On Balance Volume measures volume flow with a single Easy-to-Read Line. Volume flow precedes price movement and helps sustain the price downtrend. When a stock closes up, volume is added to the line. When a stock closes down, volume is subtracted from the line. A cumulative total of these additions and subtractions form the OBV line.

On Balance Volume Indicator

● When Close is Up, Volume is Added

● When Close is Down, Volume is Subtracted

● A Cumulative Total of Additions and Subtractions form the OBV Line

Volume flow precedes price and is the key to measuring the validity and sustainability of a price trend. 

We can see from the OBV chart below that the On Balance Volume line for QCOM is sloping down. A down-sloping line indicates that the volume is heavier on down days and selling pressure is exceeding buying pressure. Selling pressure must continue to exceed buying pressure in order to sustain a price downtrend. So, On Balance Volume is a simple indicator to use that confirms the price downtrend and its sustainability.

The numerical value of the On Balance Volume line is not important. We simply want to see a down-sloping line to confirm a price downtrend.

 

Confirmed ‘Sell’ Signal for QCOM

Since QCOM's OBV line is sloping down, the most likely future price movement for QCOM is down, making QCOM a good candidate for a put option debit spread.

Let's use the Hughes Optioneering calculator to look at the potential returns for a QCOM debit spread.

The Put Option Spread Calculator will calculate the profit/loss potential for a put option spread based on the price change of the underlying stock/ETF at option expiration in this example from a 7.5% decrease to a 7.5% increase in QCOM stock at option expiration.

The goal of this example is to demonstrate the ‘built in’ profit potential for option spreads and the ability of spreads to profit if the underlying stock is down, up, or flat at option expiration. Out of fairness to our paid option service subscribers we don’t list the option strike prices used in the profit/loss calculation.

The prices and returns represented below were calculated based on the current stock and option pricing for QCOM on 10/26/2022 before commissions.

Built in Profit Potential

For this option spread, the calculator analysis below reveals the cost of the spread is $630 (circled). The maximum risk for an option spread is the cost of the spread.

The analysis reveals that if QCOM stock is flat or down at all at expiration the spread will realize a 58.7% return (circled). 

And if QCOM stock increases 7.5% at option expiration, the option spread would make a 27.5% return (circled). 

Due to option pricing characteristics, this option spread has a ‘built in’ 58.7% profit potential when the trade was identified*.

Option spread trades can result in a higher percentage of winning trades compared to a directional option trade if you can profit when the underlying stock/ETF is up, down or flat.

A higher percentage of winning trades can give you the discipline needed to become a successful trader.

The Hughes Optioneering Team is here to help you identify profit opportunities just like this one.

 

Interested in accessing the Optioneering Calculators? Join one of Chuck's Trading Services for unlimited access! The Optioneering Team has option calculators for six different option strategies that allow you to calculate the profit potential for an option trade before you take the trade.

 *Trading incurs risk and some people lose money trading.

 

October 25th, 2022

Upward Momentum for Merck Shares

Yesterday, we looked at a Monthly Price Chart of CIGNA Corp., noting that the stock’s 1-Month Price is trading above the 10-Month SMA signaling a ‘Buy’.

For today’s Trade of the Day e-letter we will be looking at a Moving Average Convergence/ Divergence (MACD) chart for Merck & Co., Inc. stock symbol: MRK.

Before breaking down MRK’s MACD chart let’s first review what products and services the company offers.

Merck & Co., Inc. operates as a healthcare company worldwide. It operates through two segments, Pharmaceutical and Animal Health. The Pharmaceutical segment offers human health pharmaceutical products in the areas of oncology, hospital acute care, immunology, neuroscience, virology, cardiovascular, and diabetes, as well as vaccine products, such as preventive pediatric, adolescent, and adult vaccines.  

MACD Indicator confirms Price Momentum

The MRK daily price chart below shows that MRK is in a price uptrend as the 24/52 day MACD line (black line) is above the 18-Day EMA (purple line). The Moving Average Convergence/ Divergence chart is shown below the daily price chart.

MACD uses moving averages to create a momentum indicator by subtracting the longer-term moving average from the shorter-term moving average. The MACD is calculated by subtracting a stock’s longer term 52-Day Exponential Moving Average (EMA) from its shorter term 24-Day EMA. This creates the MACD line.

MACD ‘Buy’ Signal

The 18-Day EMA line functions as a buy/sell ‘trigger’. When the 24/52 Day MACD line crosses above the 18-Day EMA line it indicates positive momentum and higher prices for the stock. When the 24/52 Day MACD lines crosses below the 18-Day EMA it indicates negative momentum and lower prices for the stock. MACD is more of a leading indicator than a moving average cross over which tends to lag price movement.

MACD Histogram shows Acceleration of Momentum

Also included in a MACD chart is the histogram bar graph. This portion of the chart helps to illustrate the distance between the 24/52 Day MACD and the 18-Day EMA.

When a crossover initially occurs, the histogram’s bar will be near flat as the two indicator lines have converged. As the lines begin to separate, the bars grow in height, indicating a widening gap and acceleration for the stock’s momentum. When the histogram’s bars begin to shrink this indicates a narrowing of the gap between the 24/52 Day MACD and the 18-Day EMA and a slowing of the stock’s momentum. When the gap between the two indicators begins to narrow, this typically indicates a crossover of the indicator lines could happen soon.

 

Buy MRK Stock

As long as the 24/52 Day MACD line remains above the 18-Day EMA, the stock is more likely to keep trading at new highs in the coming days and weeks.

Since MRK’s bullish run is likely to continue, the stock should be purchased.

Our initial price target for MRK stock is 102.25 per share.

97.9% Profit Potential for MRK Option

Now, since MRK’s 24/52 Day MACD is trading above the 18-Day EMA this means the stock’s bullish rally will likely continue. Let’s use the Hughes Optioneering calculator to look at the potential returns for a MRK call option purchase.

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

The Optioneering Team uses the 1% Rule to select an option strike price with a higher percentage of winning trades. In the following MRK option example, we used the 1% Rule to select the MRK 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 a MRK in-the-money option strike price, MRK stock only has to increase 1% for the option to breakeven and start profiting! Remember, if you purchase an at-the-money or out-of-the-money call 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 MRK stock is flat at 97.37 at option expiration, it will only result in an 8.5% loss for the MRK option compared to a 100% loss for an at-the-money or out-of-the-money call 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 call 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 MRK on 10/24/2022 before commissions.

When you purchase a call option, there is no limit on the profit potential of the call if the underlying stock continues to move up in price.

For this specific call option, the calculator analysis below reveals if MRK stock increases 5.0% at option expiration to 102.24 (circled), the call option would make 44.7% before commission. 

If MRK stock increases 10.0% at option expiration to 107.11 (circled), the call option would make 97.9% before commission and outperform the stock return nearly 10 to 1*. 

The leverage provided by call options allows you to maximize potential returns on bullish stocks.

The Hughes Optioneering Team is here to help you identify profit opportunities just like this one.

 

Interested in accessing the Optioneering Calculators? Join one of Chuck's Trading Services for unlimited access! The Optioneering Team has option calculators for six different option strategies that allow you to calculate the profit potential for an option trade before you take the trade.

 *Trading incurs risk and some people lose money trading.

 

Weekly Workshop –  ​From October 9th 2022

We are experiencing some technical difficulties with the video editor.

The Weekly Workshop today is regarding Discover Financial Services or DFS stock. The two segments for the company are Digital Banking and Payment Services. The most well-known product would be the Discover brand credit cards.

If looking at a monthly chart for DFS, Chuck uses the 10-month Moving Average for the buy or sell signal. At the end of January 2022, DFS stock ended below the 10-month MA and signaled a new sell signal.

To confirm the signal, Chuck looked at a daily chart. On daily charts, DFS’s 50 EMA crossed below the 100 EMA most recently in March. This confirms the sell signal. If looking at Keltner Channels, DFS is currently close to the middle channel and is in the Keltner Channel Sell Zone. This is good for an entry point for bearish positions.

When looking at option premiums, Chuck enters positions using a limit order of the midpoint between the bid and the ask. November 11 options will expire in about 5 weeks and will be used for both option positions reviewed this week. At market close on Friday, DFS stock ended at 93.40.

First, we’ll look at a put option purchase for DFS stock. We developed what we call the 1% Rule to help us select an option strike price. The 1% rule says to limit the time value portion of the option to less than 1% of the stock/ETF price. If you limit the time value portion of an option to 1%, the stock price only has to move 1% for the option contract to break even and start profiting.

Looking at the DFS November 11 105 put, the midpoint between the bid and the ask is 12.45. This makes the put have a time value of 0.85. DFS stock must only decrease 0.85 for the put option to begin profiting. At a 1% decrease in the stock, the DFS Nov 11 105 put can profit $8 or 0.7% . This put option meets our 1%. At a 10% decrease in DFS stock at option expiration, the option can profit 68.2% .

Buy to open the DFS Nov 11 105 put at 12.45

Now looking at an option debit spread, we will still use November 11th options and use the midpoint between the bid and the ask for option premium pricing. If Chuck bought the 110 put at 16.85 and sold the 100 call at 9.10 , the total cost of the spread would be $7.75. This spread would profit 29% or $225 if DFS stock decreased, stayed flat, or increased by 5% at option expiration. If DFS stock increased 7.5% at option expiration, the spread could profit 23.8% or $185.

Buy to open the DFS Nov 11 110 put at 16.85

Sell to open the DFS Nov 11 100 put at 9.10

Today’s Trade were the following

Buy to open the DFS Nov 11 105 put at 12.45

And

Buy to open the DFS Nov 11 110 put at 16.85

Sell to open the DFS Nov 11 100 put at 9.10

 

October 20th, 2022

Profit From Verizon’s Plunge?

Yesterday, we looked at a Monthly Price Chart of MongoDB, Inc. noting that the stock’s 1-Month Price is trading below the 10-Month SMA signaling a ‘Sell’.

For today’s Trade of the Day we will be looking at an On Balance Volume chart for Verizon Communications Inc., stock symbol: VZ.

Before breaking down VZ’s OBV chart let’s first review which products and services are offered by the company.

Verizon Communications Inc., through its subsidiaries, offers communications, technology, information, and entertainment products and services to consumers, businesses, and governmental entities worldwide. Its Consumer segment provides postpaid and prepaid service plans; internet access on notebook computers and tablets; wireless equipment, including smartphones and other handsets; and wireless-enabled internet devices, such as tablets, and other wireless-enabled connected devices comprising smart watches.

Confirming a Price Downtrend with OBV

The VZ daily price chart below shows that VZ is in a price downtrend as the current price is below the price VZ traded at six months ago (circled). The On Balance Volume chart is below the daily chart.

On Balance Volume measures volume flow with a single Easy-to-Read Line. Volume flow precedes price movement and helps sustain the price downtrend. When a stock closes up, volume is added to the line. When a stock closes down, volume is subtracted from the line. A cumulative total of these additions and subtractions form the OBV line.

On Balance Volume Indicator

● When Close is Up, Volume is Added

● When Close is Down, Volume is Subtracted

● A Cumulative Total of Additions and Subtractions form the OBV Line

Volume flow precedes price and is the key to measuring the validity and sustainability of a price trend. 

We can see from the OBV chart below that the On Balance Volume line for VZ is sloping down. A down-sloping line indicates that the volume is heavier on down days and selling pressure is exceeding buying pressure. Selling pressure must continue to exceed buying pressure in order to sustain a price downtrend. So, On Balance Volume is a simple indicator to use that confirms the price downtrend and its sustainability.

The numerical value of the On Balance Volume line is not important. We simply want to see a down-sloping line to confirm a price downtrend.

 

Confirmed ‘Sell’ Signal for VZ

Since VZ's OBV line is sloping down, the most likely future price movement for VZ is down, making VZ a good candidate for a put option purchase.

Let's use the Hughes Optioneering calculator to look at the potential returns for a VZ 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 VZ 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 VZ option example, we used the 1% Rule to select the VZ 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 a VZ in-the-money option strike price, VZ stock only has to decrease 1% for the option to breakeven 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 VZ stock is flat at 36.57 at option expiration, it will only result in a 2.8% loss for the VZ 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 VZ on 10/19/2022 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 VZ stock decreases 5.0% at option expiration to 34.74 (circled), the put option would make 49.0% before commission. 

If VZ stock decreases 10.0% at option expiration to 32.91 (circled), the put option would make 100.8% before commission and greatly outperform the stock’s return*. 

The leverage provided by put options allows you to maximize potential returns on bearish stocks.

The Hughes Optioneering Team is here to help you identify profit opportunities just like this one.

 

Interested in accessing the Optioneering Calculators? Join one of Chuck's Trading Services for unlimited access! The Optioneering Team has option calculators for six different option strategies that allow you to calculate the profit potential for an option trade before you take the trade.

*Trading incurs risk and some people lose money trading.

October 18th, 2022

Chipotle Flashes New ‘Buy’ Signal

Yesterday, we looked at a Daily Price Chart for Advanced Micro Devices, Inc. noting that the stock had been making a series of new 52-Week Lows.

For today’s Trade of the Day e-letter we will be looking at a daily price chart for Chipotle Mexican Grill Inc. stock symbol: CMG.

Before breaking down CMG’s daily chart let’s first review what products and services the company offers.

Chipotle Mexican Grill, Inc., together with its subsidiaries, owns and operates Chipotle Mexican Grill restaurants. As of February 15, 2022, it owned and operated approximately 3,000 restaurants in the United States, Canada, the United Kingdom, France, Germany, and rest of Europe. 

Now, let’s begin to break down the Daily Price chart for CMG stock.

Below is a Daily Price chart with the 50-Day EMA and 100-Day EMA for CMG.

 

50-Day EMA and 100-Day EMA ‘Buy’ Signal

The 50-Day Exponential Moving Average (EMA) and 100-Day EMA are moving average indicator lines that can provide buy and sell signals when used together. When the shorter-term 50-Day EMA crosses above or below the longer-term 100-Day EMA, this provides either a buy or sell signal depending on which direction the stock price is moving.

  • 50-Day EMA line Above 100-Day EMA = Price Uptrend = Buy signal
  • 50 Day EMA line Below 100-Day EMA = Price Downtrend = Sell signal

 

When the 50-Day EMA (blue line) crosses above the 100-Day EMA (red line) this indicates that the stock’s buying pressure has begun to outweigh the selling pressure signaling a ‘buy’ signal. When the 50-Day EMA crosses below the 100-Day EMA this indicates that the selling pressure has begun to outweigh the buying pressure signaling a ‘sell’ signal.

Buy CMG Stock

As the chart shows, on August 11th, the CMG 50-Day EMA, crossed above the 100-Day EMA.

This crossover indicated the buying pressure for CMG stock exceeded the selling pressure. For this kind of crossover to occur, a stock has to be in a strong bullish trend.

Now, as you can see, the 50-Day EMA is still above the 100-Day EMA meaning the ‘buy’ signal is still in play.

As long as the 50-Day EMA remains above the 100-Day EMA, the stock is more likely to keep trading at new highs and should be purchased.

Our initial price target for CMG stock is 1600.00 per share.

Profit if CMG is Up, Down or Flat

Now, since CMG’s 50-Day EMA is currently trading above the 100-Day EMA and will likely rally from here, let’s use the Hughes Optioneering calculator to look at the potential returns for a CMG call option spread.

The Call Option Spread Calculator will calculate the profit/loss potential for a call option spread based on the price change of the underlying stock/ETF at option expiration in this example from a 10.0% increase to a 10.0% decrease in CMG stock at option expiration.

The goal of this example is to demonstrate the ‘built in’ profit potential for option spreads and the ability of spreads to profit if the underlying stock is up, down or flat at option expiration. Out of fairness to our paid option service subscribers we don’t list the option strike prices used in the profit/loss calculation.

The prices and returns represented below were calculated based on the current stock and option pricing for CMG on 10/17/2022 before commissions.

Built in Profit Potential

For this option spread, the calculator analysis below reveals the cost of the spread is $265 (circled). The maximum risk for an option spread is the cost of the spread.

The analysis reveals that if CMG stock is flat or up at all at expiration the spread will realize an 88.7% return (circled). 

And if CMG stock decreases 10.0% at option expiration, the option spread would make an 88.7% return (circled). 

Due to option pricing characteristics, this option spread has a ‘built in’ 88.7% profit potential when the trade was identified*.

Option spread trades can result in a higher percentage of winning trades compared to a directional option trade if you can profit when the underlying stock/ETF is up, down or flat.

A higher percentage of winning trades can give you the discipline needed to become a successful trader. 

The Hughes Optioneering Team is here to help you identify profit opportunities just like this one.

Interested in accessing the Optioneering Calculators? Join one of Chuck's Trading Services for unlimited access! The Optioneering Team has option calculators for six different option strategies that allow you to calculate the profit potential for an option trade before you take the trade.

 

*Trading incurs risk and some people lose money trading.

 

 

October 13th, 2022

Built-in 53.8% Profit Potential for KNSL

Yesterday, we looked at a Daily Price Chart of Moody’s Corp., noting that the stock’s 24/52 Day MACD is trading below the 18-Day EMA signaling a ‘Sell’.

For today’s Trade of the Day e-letter we will be looking at a monthly chart for Kinsale Capital Group, Inc., stock symbol: KNSL.

Before breaking down KNSL’s monthly chart let’s first review what products and services the company offers.

Kinsale Capital Group, Inc., a specialty insurance company, provides property and casualty insurance products in the United States. The company's commercial lines offerings include construction, small business, excess and general casualty, commercial property, allied health, life sciences, energy, environmental, health care, inland marine, public entity, and commercial insurance, as well as product, professional, and management liability insurance.

Now, let’s begin to break down the monthly chart for KNSL stock. Below is a 10-Month Simple Moving Average chart for Kinsale Capital Group, Inc.

 

Buy KNSL Stock

As the chart shows, in October 2021, the KNSL 1-Month Price, crossed above the 10-Month simple moving average (SMA).

This crossover indicated the buying pressure for KNSL stock exceeded the selling pressure. For this kind of crossover to occur, a stock has to be in a strong bullish uptrend.

Now, as you can see, the 1-Month Price is still above the 10-Month SMA. That means the bullish trend is still in play! 

As long as the 1-Month price remains above the 10-Month SMA, the stock is more likely to keep trading at new highs and should be purchased.

Our initial price target for KNSL is 300.00 per share.

Profit if KNSL is Up, Down or Flat

Now, since KNSL’s Monthly Price is currently trading above the 10-Month SMA and will likely rally from here, let’s use the Hughes Optioneering calculator to look at the potential returns for a KNSL call option spread.

The Call Option Spread Calculator will calculate the profit/loss potential for a call option spread based on the price change of the underlying stock/ETF at option expiration in this example from a 7.5% increase to a 7.5% decrease in KNSL stock at option expiration.

The goal of this example is to demonstrate the ‘built in’ profit potential for option spreads and the ability of spreads to profit if the underlying stock is up, down or flat at option expiration. Out of fairness to our paid option service subscribers we don’t list the option strike prices used in the profit/loss calculation.

The prices and returns represented below were calculated based on the current stock and option pricing for KNSL on 10/12/2022 before commissions.

Built in Profit Potential

For this option spread, the calculator analysis below reveals the cost of the spread is $650 (circled). The maximum risk for an option spread is the cost of the spread.

The analysis reveals that if KNSL stock is flat or up at all at expiration the spread will realize a 53.8% return (circled). 

And if KNSL stock decreases 7.5% at option expiration, the option spread would make a 50.4% return (circled). 

Due to option pricing characteristics, this option spread has a ‘built in’ 53.8% profit potential when the trade was identified*.

Option spread trades can result in a higher percentage of winning trades compared to a directional option trade if you can profit when the underlying stock/ETF is up, down or flat.

A higher percentage of winning trades can give you the discipline needed to become a successful trader. 

The Hughes Optioneering Team is here to help you identify profit opportunities just like this one.

 

Interested in accessing the Optioneering Calculators? Join one of Chuck's Trading Services for unlimited access! The Optioneering Team has option calculators for six different option strategies that allow you to calculate the profit potential for an option trade before you take the trade.

 
*Trading incurs risk and some people lose money trading.

 

October 11th, 2022

PowerTrend ‘Sell’ for Oracle

Yesterday, we looked at a Daily Price Chart of Toyota Motor Corp., noting that the stock’s OBV line is sloping down, validating the stock’s recent bearish trend.

For today’s Trade of the Day e-letter we will be looking at a monthly chart for Oracle Corp. stock symbol: ORCL.

Before breaking down ORCL’s monthly chart let’s first review what products and services the company offers.

Oracle Corporation offers products and services that address enterprise information technology environments worldwide. Its Oracle cloud software as a service offering include various cloud software applications, including Oracle Fusion cloud enterprise resource planning, Oracle Fusion cloud enterprise performance management, Oracle Fusion cloud supply chain and manufacturing management, Oracle Fusion cloud human capital management, Oracle Advertising, and NetSuite applications suite, as well as Oracle Fusion Sales, Service, and Marketing.

Now, let’s begin to break down the monthly chart for ORCL stock.

Below is a 10-Month Simple Moving Average chart for Oracle Corp.

 

Sell ORCL Stock

As the chart shows, in January, the ORCL 1-Month Price, crossed below the 10-Month simple moving average (SMA).

This crossover indicated the selling pressure for ORCL stock exceeded the buying pressure. For this kind of crossover to occur, a stock has to be in a strong bearish downtrend.

Now, as you can see, the 1-Month Price is still below the 10-Month SMA. That means the bearish trend is still in play! 

As long as the 1-Month price remains below the 10-Month SMA, the stock is more likely to keep trading at new lows and bearish positions should be initiated.

Our initial price target for ORCL is 59.45 per share.

88.0% Profit Potential for ORCL Option

Now, since ORCL’s 1-Month Price is trading below the 10-Month SMA 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 ORCL 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 ORCL 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 ORCL option example, we used the 1% Rule to select the ORCL 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 ORCL in-the-money option strike price, ORCL stock only has to decrease 1% for the option to breakeven 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 ORCL stock is flat at 62.57 at option expiration, it will only result in a 4.7% loss for the ORCL 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 ORCL on 10/10/2022 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 ORCL stock decreases 5.0% at option expiration to 59.44 (circled), the put option would make 41.6% before commission. 

If ORCL stock decreases 10.0% at option expiration to 56.31 (circled), the put option would make 88.0% before commission and greatly outperform the stock’s return*. 

The leverage provided by put options allows you to maximize potential returns on bearish stocks.

The Hughes Optioneering Team is here to help you identify profit opportunities just like this one.

 

Interested in accessing the Optioneering Calculators? Join one of Chuck's Trading Services for unlimited access! The Optioneering Team has option calculators for six different option strategies that allow you to calculate the profit potential for an option trade before you take the trade.

 
*Trading incurs risk and some people lose money trading.

 

October 11th, 2022 

Video from September 25, 2022

 

 

October 6th, 2022

REIT Shares Drop Off Steeply

Yesterday, we looked at a Daily Price Chart for Akamai Technologies, Inc., noting that the stock’s 50-Day EMA is trading below the 100-Day EMA signaling a ‘Sell’.

For today’s Trade of the Day we will be looking at a Daily Price chart for Sun Communities, Inc. stock symbol: 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.

 

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 a 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 a SUI in-the-money option strike price, SUI stock only has to decrease 1% for the option to breakeven 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.

The Hughes Optioneering Team is here to help you identify profit opportunities just like this one.

 

Interested in accessing the Optioneering Calculators? Join one of Chuck's Trading Services for unlimited access! The Optioneering Team has option calculators for six different option strategies that allow you to calculate the profit potential for an option trade before you take the trade.

 *Trading incurs risk and some people lose money trading.

October 4th, 2022

EXPE Shares Trending Down

Yesterday, we looked at a Monthly Price Chart of Equity Residential Property Trust, noting that the stock’s 1-Month Price is trading below the 10-Month SMA.

For today’s Trade of the Day e-letter we will be looking at a Moving Average Convergence/ Divergence (MACD) chart for Expedia, Inc. stock symbol: EXPE.

Before breaking down EXPE’s MACD chart let’s first review what products and services the company offers.

Expedia Group, Inc. operates as an online travel company in the United States and internationally. The company operates through Retail, B2B, and trivago segments. Its brand portfolio include Brand Expedia, a full-service online travel brand with localized websites; Hotels.com for marketing and distributing lodging accommodations; Vrbo, an online marketplace for the alternative accommodations; Orbitz, Travelocity, and CheapTickets travel websites; and more.   

MACD Indicator confirms Price Momentum

The EXPE daily price chart below shows that EXPE is in a price downtrend as the 24/52 day MACD line (black line) is below the 18-Day EMA (purple line). The Moving Average Convergence/ Divergence chart is shown below the daily price chart.

MACD uses moving averages to create a momentum indicator by subtracting the longer-term moving average from the shorter-term moving average. The MACD is calculated by subtracting a stock’s longer term 52-Day Exponential Moving Average (EMA) from its shorter term 24-Day EMA. This creates the MACD line.

MACD ‘Sell’ Signal

The 18-Day EMA line functions as a buy/sell ‘trigger’. When the 24/52 Day MACD line crosses above the 18-Day EMA line it indicates positive momentum and higher prices for the stock. When the 24/52 Day MACD lines crosses below the 18-Day EMA it indicates negative momentum and lower prices for the stock. MACD is more of a leading indicator than a moving average cross over which tends to lag price movement.

MACD Histogram shows Acceleration of Momentum

Also included in a MACD chart is the histogram bar graph. This portion of the chart helps to illustrate the distance between the 24/52 Day MACD and the 18-Day EMA.

When a crossover initially occurs, the histogram’s bar will be near flat as the two indicator lines have converged. As the lines begin to separate, the bars grow in height, indicating a widening gap and acceleration for the stock’s momentum. When the histogram’s bars begin to shrink this indicates a narrowing of the gap between the 24/52 Day MACD and the 18-Day EMA and a slowing of the stock’s momentum. When the gap between the two indicators begins to narrow, this typically indicates a crossover of the indicator lines could happen soon.

 

Sell EXPE Stock

As long as the 24/52 Day MACD line remains below the 18-Day EMA, the stock is more likely to keep trading at new lows in the coming days and weeks.

Since EXPE’s bearish run is likely to continue, bearish positions should be initiated.

Our initial price target for EXPE stock is 88.75 per share.

Profit if EXPE is Down, Up, or Flat

Now, since EXPE’s 24/52 Day MACD is trading below the 18-Day EMA, the stock will likely continue its trend downward. Let’s use the Hughes Optioneering calculator to look at the potential returns for an EXPE put option spread.

The Put Option Spread Calculator will calculate the profit/loss potential for a put option spread based on the price change of the underlying stock/ETF at option expiration in this example from a 10.0% decrease to a 10.0% increase in EXPE stock at option expiration.

The goal of this example is to demonstrate the ‘built in’ profit potential for option spreads and the ability of spreads to profit if the underlying stock is down, up, or flat at option expiration. Out of fairness to our paid option service subscribers we don’t list the option strike prices used in the profit/loss calculation.

The prices and returns represented below were calculated based on the current stock and option pricing for EXPE on 10/3/2022 before commissions.

Built in Profit Potential

For this option spread, the calculator analysis below reveals the cost of the spread is $317 (circled). The maximum risk for an option spread is the cost of the spread.

The analysis reveals that if EXPE stock is flat or down at all at expiration the spread will realize a 57.7% return (circled). 

And if EXPE stock increases 10.0% at option expiration, the option spread would make a 57.7% return (circled). 

Due to option pricing characteristics, this option spread has a ‘built in’ 57.7% profit potential when the trade was identified*.

Option spread trades can result in a higher percentage of winning trades compared to a directional option trade if you can profit when the underlying stock/ETF is up, down or flat.

A higher percentage of winning trades can give you the discipline needed to become a successful trader.

The Hughes Optioneering Team is here to help you identify profit opportunities just like this one.

 

Interested in accessing the Optioneering Calculators? Join one of Chuck's Trading Services for unlimited access! The Optioneering Team has option calculators for six different option strategies that allow you to calculate the profit potential for an option trade before you take the trade.

 *Trading incurs risk and some people lose money trading.

 

 

 

From September 18, 2022

 

 

September 29th, 2022

Profit if MSFT is Up, Flat, or Down

Yesterday, we looked at a Daily Price Chart for Truist Financial Corporation noting that the stock has been recently making a new series of 52-Week Lows.

For today’s Trade of the Day e-letter we will be looking at a daily price chart for Microsoft Corp. stock symbol: MSFT.

Before breaking down MSFT’s daily chart let’s first review what products and services the company offers.

Microsoft Corporation develops, licenses, and supports software, services, devices, and solutions worldwide. The company operates in three segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. The Productivity and Business Processes segment offers Office, Exchange, SharePoint, Microsoft Teams, Office 365 Security and Compliance, Microsoft Viva, and Skype for Business; Skype, Outlook.com, OneDrive, and LinkedIn; and Dynamics 365. 

Now, let’s begin to break down the Daily Price chart for MSFT stock.

Below is a Daily Price chart with the 50-Day EMA and 100-Day EMA for MSFT.

 

50-Day EMA and 100-Day EMA ‘Sell’ Signal

The 50-Day Exponential Moving Average (EMA) and 100-Day EMA are moving average indicator lines that can provide buy and sell signals when used together. When the shorter-term 50-Day EMA crosses above or below the longer-term 100-Day EMA, this provides either a buy or sell signal depending on which direction the stock price is moving.

  • 50-Day EMA line Above 100-Day EMA = Price Uptrend = Buy signal
  • 50 Day EMA line Below 100-Day EMA = Price Downtrend = Sell signal

 

When the 50-Day EMA (blue line) crosses above the 100-Day EMA (red line) this indicates that the stock’s buying pressure has begun to outweigh the selling pressure signaling a ‘buy’ signal. When the 50-Day EMA crosses below the 100-Day EMA this indicates that the selling pressure has begun to outweigh the buying pressure signaling a ‘sell’ signal.

Sell MSFT Stock

As the chart shows, on February 18th, the MSFT 50-Day EMA, crossed below the 100-Day EMA.

This crossover indicated the selling pressure for MSFT stock exceeded the buying pressure. For this kind of crossover to occur, a stock has to be in a strong bearish trend.

Now, as you can see, the 50-Day EMA is still below the 100-Day EMA meaning the ‘sell’ signal is still in play.

As long as the 50-Day EMA remains below the 100-Day EMA, the stock is more likely to keep trading at new lows and bearish positions should be initiated.

Our initial price target for MSFT stock is 232.00 per share.

Profit if MSFT is Down, Up, or Flat

Now, since MSFT’s 50-Day EMA is trading below the 100-Day EMA, the stock will likely continue its trend downward. Let’s use the Hughes Optioneering calculator to look at the potential returns for a MSFT put option spread.

The Put Option Spread Calculator will calculate the profit/loss potential for a put option spread based on the price change of the underlying stock/ETF at option expiration in this example from a 10.0% decrease to a 10.0% increase in MSFT stock at option expiration.

The goal of this example is to demonstrate the ‘built in’ profit potential for option spreads and the ability of spreads to profit if the underlying stock is down, up, or flat at option expiration. Out of fairness to our paid option service subscribers we don’t list the option strike prices used in the profit/loss calculation.

The prices and returns represented below were calculated based on the current stock and option pricing for MSFT on 9/28/2022 before commissions.

Built in Profit Potential

For this option spread, the calculator analysis below reveals the cost of the spread is $657 (circled). The maximum risk for an option spread is the cost of the spread.

The analysis reveals that if MSFT stock is flat or down at all at expiration the spread will realize a 52.2% return (circled). 

And if MSFT stock increases 10.0% at option expiration, the option spread would make a 49.5% return (circled). 

Due to option pricing characteristics, this option spread has a ‘built in’ 52.2% profit potential when the trade was identified*.

Option spread trades can result in a higher percentage of winning trades compared to a directional option trade if you can profit when the underlying stock/ETF is up, down or flat.

A higher percentage of winning trades can give you the discipline needed to become a successful trader.

The Hughes Optioneering Team is here to help you identify profit opportunities just like this one.

 

Interested in accessing the Optioneering Calculators? Join one of Chuck's Trading Services for unlimited access! The Optioneering Team has option calculators for six different option strategies that allow you to calculate the profit potential for an option trade before you take the trade.

 
*Trading incurs risk and some people lose money trading.

 

Sep. 27th, 2022

81.0% Profit Potential for NKE Option

Yesterday, we looked at a Monthly Price Chart of Avalonbay Communities, Inc., noting that the stock’s 1-Month Price is trading below the 10-Month SMA.

For today’s Trade of the Day e-letter we will be looking at a Moving Average Convergence/ Divergence (MACD) chart for Nike Inc. stock symbol: NKE.

Before breaking down NKE’s MACD chart let’s first review what products and services the company offers.

NIKE, Inc., together with its subsidiaries, designs, develops, markets, and sells men's, women's, and kids athletic footwear, apparel, equipment, and accessories worldwide. The company provides athletic and casual footwear, apparel, and accessories under the Jumpman trademark; and casual sneakers, apparel, and accessories under the Converse, Chuck Taylor, All Star, One Star, Star Chevron, and Jack Purcell trademarks.   

MACD Indicator confirms Price Momentum

The NKE daily price chart below shows that NKE is in a price downtrend as the 24/52 day MACD line (black line) is below the 18-Day EMA (purple line). The Moving Average Convergence/ Divergence chart is shown below the daily price chart.

MACD uses moving averages to create a momentum indicator by subtracting the longer-term moving average from the shorter-term moving average. The MACD is calculated by subtracting a stock’s longer term 52-Day Exponential Moving Average (EMA) from its shorter term 24-Day EMA. This creates the MACD line.

MACD ‘Sell’ Signal

The 18-Day EMA line functions as a buy/sell ‘trigger’. When the 24/52 Day MACD line crosses above the 18-Day EMA line it indicates positive momentum and higher prices for the stock. When the 24/52 Day MACD lines crosses below the 18-Day EMA it indicates negative momentum and lower prices for the stock. MACD is more of a leading indicator than a moving average cross over which tends to lag price movement.

MACD Histogram shows Acceleration of Momentum

Also included in a MACD chart is the histogram bar graph. This portion of the chart helps to illustrate the distance between the 24/52 Day MACD and the 18-Day EMA.

When a crossover initially occurs, the histogram’s bar will be near flat as the two indicator lines have converged. As the lines begin to separate, the bars grow in height, indicating a widening gap and acceleration for the stock’s momentum. When the histogram’s bars begin to shrink this indicates a narrowing of the gap between the 24/52 Day MACD and the 18-Day EMA and a slowing of the stock’s momentum. When the gap between the two indicators begins to narrow, this typically indicates a crossover of the indicator lines could happen soon.

 

Sell NKE Stock

As long as the 24/52 Day MACD line remains below the 18-Day EMA, the stock is more likely to keep trading at new lows in the coming days and weeks.

Since NKE’s bearish run is likely to continue, bearish positions should be initiated.

Our initial price target for NKE stock is 91.25 per share.

 

81.0% Profit Potential for NKE Option

Now, since NKE’s 24/52 Day MACD is trading below the 18-Day EMA this means the stock’s bearish decline will likely continue. Let’s use the Hughes Optioneering calculator to look at the potential returns for a NKE 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 NKE 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 NKE option example, we used the 1% Rule to select the NKE 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 a NKE in-the-money option strike price, NKE stock only has to decrease 1% for the option to breakeven 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 NKE stock is flat at 96.06 at option expiration, it will only result in an 8.0% loss for the NKE 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 NKE on 9/26/2022 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 NKE stock decreases 5.0% at option expiration to 91.26 (circled), the put option would make 36.5% before commission. 

If NKE stock decreases 10.0% at option expiration to 86.45 (circled), the put option would make 81.0% before commission and outperform the stock return more than 8 to 1*. 

The leverage provided by put options allows you to maximize potential returns on bearish stocks.

The Hughes Optioneering Team is here to help you identify profit opportunities just like this one.

 

Interested in accessing the Optioneering Calculators? Join one of Chuck's Trading Services for unlimited access! The Optioneering Team has option calculators for six different option strategies that allow you to calculate the profit potential for an option trade before you take the trade.

*Trading incurs risk and some people lose money trading.

 

 

 

 

September 20th, 2022

Selling Pressure Drives Paramount Down

Yesterday, we looked at a Daily Price Chart of S&P Global Inc. noting that the stock’s 24/52 Day MACD is trading below the 18-Day EMA signaling a ‘Sell’.

For today’s Trade of the Day we will be looking at an On Balance Volume chart for Paramount Global, stock symbol: PARA.

Before breaking down PARA’s OBV chart let’s first review which products and services are offered by the company.

Paramount Global operates as a media and entertainment company worldwide. The company distributes a schedule of news and public affairs broadcasts, and sports and entertainment programming; acquires or develops, and schedules programming on the CBS Television Network that includes primetime comedies and dramas, reality, specials, kids' programs, daytime dramas, game shows, and late night programs; produces or distributes talk shows, court shows, game shows, and newsmagazines

Confirming a Price Downtrend with OBV

The PARA daily price chart below shows that PARA is in a price downtrend as the current price is below the price PARA traded at five months ago (circled). The On Balance Volume chart is below the daily chart.

On Balance Volume measures volume flow with a single Easy-to-Read Line. Volume flow precedes price movement and helps sustain the price downtrend. When a stock closes up, volume is added to the line. When a stock closes down, volume is subtracted from the line. A cumulative total of these additions and subtractions form the OBV line.

On Balance Volume Indicator

● When Close is Up, Volume is Added

● When Close is Down, Volume is Subtracted

● A Cumulative Total of Additions and Subtractions form the OBV Line

Volume flow precedes price and is the key to measuring the validity and sustainability of a price trend. 

We can see from the OBV chart below that the On Balance Volume line for PARA is sloping down. A down-sloping line indicates that the volume is heavier on down days and selling pressure is exceeding buying pressure. Selling pressure must continue to exceed buying pressure in order to sustain a price downtrend. So, On Balance Volume is a simple indicator to use that confirms the price downtrend and its sustainability.

The numerical value of the On Balance Volume line is not important. We simply want to see a down-sloping line to confirm a price downtrend.

 

Confirmed ‘Sell’ Signal for PARA

Since PARA's OBV line is sloping down, the most likely future price movement for PARA is down, making PARA a good candidate for a put option purchase.

Let's use the Hughes Optioneering calculator to look at the potential returns for a PARA 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 PARA 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 PARA option example, we used the 1% Rule to select the PARA 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 a PARA in-the-money option strike price, PARA stock only has to decrease 1% for the option to breakeven 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 PARA stock is flat at 21.40 at option expiration, it will only result in a 4.5% loss for the PARA 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 PARA on 9/21/2022 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 PARA stock decreases 5.0% at option expiration to 20.33 (circled), the put option would make 44.1% before commission. 

If PARA stock decreases 10.0% at option expiration to 19.26 (circled), the put option would make 92.7% before commission and outperform the stock return more than 9 to 1*. 

The leverage provided by put options allows you to maximize potential returns on bearish stocks.

The Hughes Optioneering Team is here to help you identify profit opportunities just like this one.

 

Interested in accessing the Optioneering Calculators? Join one of Chuck's Trading Services for unlimited access! The Optioneering Team has option calculators for six different option strategies that allow you to calculate the profit potential for an option trade before you take the trade.

 *Trading incurs risk and some people lose money trading.

September 20th, 2022

Walgreens Shares Fall to New Lows

Yesterday, we looked at a Monthly Price Chart for Alibaba Group Holding Ltd., noting that the stock’s 1-Month Price is trading below the 10-Month SMA.

For today’s Trade of the Day we will be looking at a Daily Price chart for Walgreens Boots Alliance, Inc. stock symbol: WBA.

Before breaking down WBA’s daily price chart let’s first review which products and services are offered by the company.

Walgreens Boots Alliance, Inc. operates as a pharmacy-led health and beauty retail company. It operates through two segments, the United States and International. The United States segment sells prescription drugs and an assortment of retail products, including health, wellness, beauty, personal care, consumable, and general merchandise products through its retail drugstores.

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

 

Sell WBA Stock

The Daily Price chart above shows that WBA stock began reaching a series of lower highs and lower lows since mid-August.

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 WBA stock is 32.10 per share.

82.5% Profit Potential for WBA Option

Now, since WBA 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 a WBA 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 WBA 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 WBA option example, we used the 1% Rule to select the WBA 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 a WBA in-the-money option strike price, WBA stock only has to decrease 1% for the option to breakeven 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 WBA stock is flat at 34.15 at option expiration, it will only result in a 3.3% loss for the WBA 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 WBA on 9/19/2022 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 WBA stock decreases 5.0% at option expiration to 32.44 (circled), the put option would make 39.6% before commission. 

If WBA stock decreases 10.0% at option expiration to 30.74 (circled), the put option would make 82.5% before commission and outperform the stock return more than 8 to 1*. 

The leverage provided by put options allows you to maximize potential returns on bearish stocks.

The Hughes Optioneering Team is here to help you identify profit opportunities just like this one.

 

Interested in accessing the Optioneering Calculators? Join one of Chuck's Trading Services for unlimited access! The Optioneering Team has option calculators for six different option strategies that allow you to calculate the profit potential for an option trade before you take the trade.

 *Trading incurs risk and some people lose money trading.

 

 

 

 

September 15th, 2022

ADBE Sinks on Downward Momentum

Yesterday, we looked at a Daily Price Chart of the iShares MSCI Emerging Markets ETF, noting that EEM’s 50-Day EMA is trading below the 100-Day EMA.

For today’s Trade of the Day e-letter we will be looking at a Moving Average Convergence/ Divergence (MACD) chart for Adobe Systems, Inc. stock symbol: ADBE.

Before breaking down ADBE’s MACD chart let’s first review what products and services the company offers.

Adobe Inc. operates as a diversified software company worldwide. It operates through three segments: Digital Media, Digital Experience, and Publishing and Advertising. The Digital Media segment offers products, services, and solutions that enable individuals, teams, and enterprises to create, publish, and promote content; and Document Cloud, a unified cloud-based document services platform. 

MACD Indicator confirms Price Momentum

The ADBE daily price chart below shows that ADBE is in a price downtrend as the 24/52 day MACD line (black line) is below the 18-Day EMA (purple line). The Moving Average Convergence/ Divergence chart is shown below the daily price chart.

MACD uses moving averages to create a momentum indicator by subtracting the longer-term moving average from the shorter-term moving average. The MACD is calculated by subtracting a stock’s longer term 52-Day Exponential Moving Average (EMA) from its shorter term 24-Day EMA. This creates the MACD line.

MACD ‘Sell’ Signal

The 18-Day EMA line functions as a buy/sell ‘trigger’. When the 24/52 Day MACD line crosses above the 18-Day EMA line it indicates positive momentum and higher prices for the stock. When the 24/52 Day MACD lines crosses below the 18-Day EMA it indicates negative momentum and lower prices for the stock. MACD is more of a leading indicator than a moving average cross over which tends to lag price movement.

MACD Histogram shows Acceleration of Momentum

Also included in a MACD chart is the histogram bar graph. This portion of the chart helps to illustrate the distance between the 24/52 Day MACD and the 18-Day EMA.

When a crossover initially occurs, the histogram’s bar will be near flat as the two indicator lines have converged. As the lines begin to separate, the bars grow in height, indicating a widening gap and acceleration for the stock’s momentum. When the histogram’s bars begin to shrink this indicates a narrowing of the gap between the 24/52 Day MACD and the 18-Day EMA and a slowing of the stock’s momentum. When the gap between the two indicators begins to narrow, this typically indicates a crossover of the indicator lines could happen soon.

 

Sell ADBE Stock

As long as the 24/52 Day MACD line remains below the 18-Day EMA, the stock is more likely to keep trading at new lows in the coming days and weeks.

Since ADBE’s bearish run is likely to continue, bearish positions should be initiated.

Our initial price target for ADBE stock is 355.00 per share.

 

Profit if ADBE is Down, Up, or Flat

Now, since ADBE’s 24/52 Day MACD is trading below the 18-Day EMA, the stock will likely continue its trend downward. Let’s use the Hughes Optioneering calculator to look at the potential returns for an ADBE put option spread.

The Put Option Spread Calculator will calculate the profit/loss potential for a put option spread based on the price change of the underlying stock/ETF at option expiration in this example from a 10.0% decrease to a 10.0% increase in ADBE stock at option expiration.

The goal of this example is to demonstrate the ‘built in’ profit potential for option spreads and the ability of spreads to profit if the underlying stock is down, up, or flat at option expiration. Out of fairness to our paid option service subscribers we don’t list the option strike prices used in the profit/loss calculation.

The prices and returns represented below were calculated based on the current stock and option pricing for ADBE on 9/14/2022 before commissions.

Built in Profit Potential

For this option spread, the calculator analysis below reveals the cost of the spread is $665 (circled). The maximum risk for an option spread is the cost of the spread.

The analysis reveals that if ADBE stock is flat or down at all at expiration the spread will realize a 50.4% return (circled). 

And if ADBE stock increases 10.0% at option expiration, the option spread would make a 50.4% return (circled). 

Due to option pricing characteristics, this option spread has a ‘built in’ 50.4% profit potential when the trade was identified*.

Option spread trades can result in a higher percentage of winning trades compared to a directional option trade if you can profit when the underlying stock/ETF is up, down or flat.

A higher percentage of winning trades can give you the discipline needed to become a successful trader.

The Hughes Optioneering Team is here to help you identify profit opportunities just like this one.

 

Interested in accessing the Optioneering Calculators? Join one of Chuck's Trading Services for unlimited access! The Optioneering Team has option calculators for six different option strategies that allow you to calculate the profit potential for an option trade before you take the trade.

*Trading incurs risk and some people lose money trading.

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