*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.
On May 15th, we looked at a Daily Price Chart of Avalonbay Communities, Inc., noting that AVB’s 24/52 Day MACD is trading above the 18-Day EMA signaling a ‘Buy’.
On May 16th, Trade of the Day we will be looking at an On Balance Volume chart for Carrier Global Corp. stock symbol: CARR.
Before breaking down CARR’s OBV chart let’s first review which products and services are offered by the company.
Carrier Global is a provider of advanced heating, ventilation, refrigeration, air conditioning, fire, security and building automation technologies worldwide. It has 3 business segments: Heating, Ventilating & Air Conditioning (HVAC); Refrigeration; and Fire & Security.
Confirming a Price Uptrend with OBV
The CARR daily price chart below shows that CARR is in a price uptrend as the current price is above the price CARR 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 uptrend. 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 CARR 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 CARR
Since CARR’s OBV line is sloping up, the most likely future price movement for CARR is up, making CARR 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 CARR 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 CARR 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 CARR option example, we used the 1% Rule to select the CARR 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 CARR in-the-money option strike price, CARR 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 CARR stock is flat at 65.80 at option expiration, it will only result in a 7.9% loss for the CARR 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 CARR on 5/15/2024 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 CARR stock increases 5.0% at option expiration to 69.09 (circled), the call option would make 44.3% before commission.
If CARR stock increases 10.0% at option expiration to 72.38 (circled), the call option would make 96.5% 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.
Chuck Hughes
*Trading incurs risk and some people lose money trading.
May 15th, 2024
Buy Avalonbay’s Breakout
On May 14th, we looked at a Monthly Price Chart of the iShares U.S. Aerospace & Defense ETF, noting that ITA’s 1-Month Price is trading above the 10-Month SMA signaling a ‘Buy’.
For yesterday's Trade of the Day e-letter we will be looking at a Moving Average Convergence/ Divergence (MACD) chart for Avalonbay Communities, Inc. stock symbol: AVB.
Before breaking down AVB’s MACD chart let’s first review what products and services the company offers.
AvalonBay Communities, Inc. is a real estate investment trust primarily focusing on developing, redeveloping, acquisition, ownership and operations of multi-family apartment communities for higher-income clients in high barrier-to-entry regions of the United States, which generally command the highest rents in the markets.
MACD Indicator confirms Price Momentum
The AVB daily price chart below shows that AVB 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 crossover 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 AVB 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 AVB’s bullish run is likely to continue, the stock should be purchased.
Our initial price target for AVB stock is 203.75 per share.
100.2% Profit Potential for AVB Option
Now, since AVB’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 AVB 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 AVB 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 AVB option example, we used the 1% Rule to select the AVB 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 AVB in-the-money option strike price, AVB 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 AVB stock is flat at 197.49 at option expiration, it will only result in a 6.0% loss for the AVB 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 AVB on 5/14/2024 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 AVB stock increases 5.0% at option expiration to 207.36 (circled), the call option would make 47.1% before commission.
If AVB stock increases 10.0% at option expiration to 217.24 (circled), the call option would make 100.2% before commission and outperform the stock return 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.
Chuck Hughes
*Trading incurs risk and some people lose money trading.
Optioneering Video from March 31 2024 COIN
May 8th, 2024
Investors Piling into Citigroup Bank
On May 7th, we looked at a Daily Price Chart of the SPDR Utilities Select Sector ETF, noting that XLU’s 24/52 Day MACD is trading above the 18-Day EMA signaling a ‘Buy’.
For May 8th, Trade of the Day we will be looking at an On Balance Volume chart for Citigroup, Inc. stock symbol: C.
Before breaking down C’s OBV chart let’s first review which products and services are offered by the company.
Citigroup Inc. is a globally diversified financial services holding company providing a range of financial products and services including consumer banking and credit, corporate and investment banking, securities brokerage, trade and securities services and wealth management to consumers, corporations, governments and institutions.
Confirming a Price Uptrend with OBV
The C daily price chart below shows that C is in a price uptrend as the current price is above the price C 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 uptrend. 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 C 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 C
Since C’s OBV line is sloping up, the most likely future price movement for C is up, making C a good candidate for a stock purchase or a call option spread.
Let’s use the Hughes Optioneering calculator to look at the potential returns for a C debit 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 the C 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 C on 5/7/2024 before commissions.
Built in Profit Potential
For this option spread, the calculator analysis below reveals the cost of the spread is $305 (circled). The maximum risk for an option spread is the cost of the spread.
The analysis reveals that if C stock is flat or up at all at expiration the spread will realize a 63.9% return (circled).
And if C stock decreases 7.5% at option expiration, the option spread would make a 59.0% return (circled).
Due to option pricing characteristics, this option spread has a ‘built in’ 63.9% 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.
Trade High Priced Stocks for $350 With Less Risk
One of the big advantages to trading option spreads is that spreads allow you to trade high price stocks like Amazon, Google, or Netflix for as little as $350. With an option spread you can control 100 shares of Netflix for $350. If you were to purchase 100 shares of Netflix at current prices it would cost about $60,000. With the stock purchase you are risking $60,000 but with a Netflix option spread that costs $350 your maximum risk is $350 so your dollar risk is lower with option spreads compared to stock purchases.
*Trading incurs risk and some people lose money trading.
Optioneering Video from March 24 2024 ELF
May 2nd, 2024
AIG Primed for Move Higher
Yesterday, we looked at a Daily Price Chart for Chipotle Mexican Grill Inc., noting that CMG’s OBV line is sloping up, validating the stock’s recent bullish trend.
For today’s Trade of the Day e-letter we will be looking at a daily price chart for American International Group, Inc. (AIG).American International Group is a global insurance organization provideing a wide range of property casualty insurance, life insurance, retirement solutions, and other financial services globally. These offerings include products and services that help businesses and individuals protect their assets, manage risks and provide for retirement security. The company is also committed to promote economic growth in global communities.
Now, let’s begin to break down the Daily Price chart for AIG stock. Take a look at the chart below.
Unlock My Trading Secrets! With the Options for Income Newsletter you’ll gain access to multiple trade setups every week along with a brief analysis of the underlying stock’s trend and a calculator breakdown of the setup. Our newsletter will guide you through the complex world of options trading, providing you with the tools and knowledge you need to master our strategies.
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
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.
Buy AIG Stock
As the chart shows, on June 29th, 2023, the AIG 50-Day EMA, crossed above the 100-Day EMA.
This crossover indicated the buying pressure for AIG 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.
Since AIG’s 50-Day EMA is trading above the 100-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 AIG call option purchase.
For this specific call option, the calculator analysis below reveals if AIG stock is flat at 75.81 at option expiration, it will only result in a 7.3% loss for the AIG option compared to a 100% loss for an at-the-money or out-of-the-money call option.
If AIG stock increases 5.0% at option expiration to 79.60 (circled), the call option would make 44.2% before commission.
If AIG stock increases 10.0% at option expiration to 83.39 (circled), the call option would make 95.8% 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.
The prices and returns represented below were calculated based on the current stock and option pricing for AIG on 5/1/2024 before commissions.
*Trading incurs risk and some people lose money trading.
April 30th, 2024
Red Hot ‘Buy’ for Wingstop
On April 29th, we looked at a Monthly Price Chart of Leidos Holdings, Inc., noting that LDOS’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 Wingstop Inc. stock symbol: WING.
Before breaking down WING’s daily price chart let’s first review which products and services are offered by the company.
Wingstop Inc., together with its subsidiaries, franchises and operates restaurants under the Wingstop brand. Its restaurants offer classic wings, boneless wings, tenders, and hand-sauced-and-tossed in various flavors, as well as chicken sandwiches with fries and hand-cut carrots and celery that are cooked-to-order.
Now, let’s begin to break down the Daily Price chart for WING. Below is a Daily Price Chart with the price line displayed by an OHLC bar.
Buy WING Stock
The Daily Price chart above shows that WING stock has been hitting new 52-Week Highs over the past week.
Simply put, a stock does not just continually hit a series of new 52-Week Highs unless it is in a very strong bullish trend.
The Hughes Optioneering team looks for stocks that are making a series of 52-Week Highs as this is a good indicator that the stock is in a powerful uptrend.
You see, after a stock makes a series of two or more 52-Week Highs, the stock typically continues its price uptrend and should be purchased.
Our initial price target for WING stock is 405.00 per share.
Profit if WING is Up, Down or Flat
Now, since WING is making a series of new 52-Week Highs and will likely rally from here, let’s use the Hughes Optioneering calculator to look at the potential returns for a WING 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 WING 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 WING on 4/29/2024 before commissions.
Built in Profit Potential
For this option spread, the calculator analysis below reveals the cost of the spread is $575 (circled). The maximum risk for an option spread is the cost of the spread.
The analysis reveals that if WING stock is flat or up at all at expiration the spread will realize a 73.9% return (circled).
And if WING stock decreases 7.5% at option expiration, the option spread would make a 73.9% return (circled).
Due to option pricing characteristics, this option spread has a ‘built in’ 73.9% 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.
Trade High Priced Stocks for $350 With Less Risk
One of the big advantages to trading option spreads is that spreads allow you to trade high price stocks like Amazon, Google, or Netflix for as little as $350. With an option spread you can control 100 shares of Netflix for $350. If you were to purchase 100 shares of Netflix at current prices it would cost about $56,000. With the stock purchase you are risking $56,000 but with a Netflix option spread that costs $350 your maximum risk is $350 so your dollar risk is lower with option spreads compared to stock purchases.
*Trading incurs risk and some people lose money trading.
Optioneering Video from March 17 2024 MOD
April 25 th, 2024
Are New Highs in Store for TDG?
Yesterday, Trade of the Day e-letter we will be looking at a daily price chart for TransDigm Group Inc. stock (TDG). TransDigm Group, through its wholly-owned subsidiaries, is a leading global designer, producer and supplier of highly engineered aircraft components for use on nearly all commercial and military aircraft in service today.
Now, let’s begin to break down the Daily Price chart for TDG stock. Take a look at the chart below.
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
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.
Buy TDG Stock
As the chart shows, on November 18th, 2022, the TDG 50-Day EMA, crossed above the 100-Day EMA.
This crossover indicated the buying pressure for TDG 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.
Now, since TDG’s 50-Day EMA is 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 TDG 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 TDG stock at option expiration.
The analysis reveals that if TDG stock is flat or up at all at expiration the spread will realize a 50.4% return (circled).
And if TDG stock decreases 7.5% at option expiration, the option spread would make a 39.1% 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.
Trade High Priced Stocks for $350 With Less Risk
One of the big advantages to trading option spreads is that spreads allow you to trade high price stocks like Amazon, Google, or Netflix for as little as $350. With an option spread you can control 100 shares of Netflix for $350. If you were to purchase 100 shares of Netflix at current prices it would cost about $55,000. With the stock purchase you are risking $55,000 but with a Netflix option spread that costs $350 your
April 23rd, 2024
Momentum Behind RSG’s Recent Gains
On April 23rd, Trade of the Day we looked at a chart for Republic Services, Inc. (RSG). Republic Services is the second largest provider of non-hazardous solid waste collection, transfer, disposal, recycling, and energy services in the United States. The company is engaged in landfill gas-to-energy and renewable energy projects. The company generates revenues mainly from its solid waste collection operations.
Confirming a Price Uptrend with OBV
The RSG daily price chart below shows that RSG is in a price uptrend as the current price is above the price RSG 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 uptrend. 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.
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 RSG 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 RSG
Since RSG’s OBV line is sloping up, the most likely future price movement for RSG is up, making RSG 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 RSG call option purchase.
Trade with Higher Accuracy
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 RSG stock increases 5.0% at option expiration to 201.35 (circled), the call option would make 65.5% before commission.
If RSG stock increases 10.0% at option expiration to 210.94 (circled), the call option would make 139.8% before commission and outperform the stock return nearly 14 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.
The prices and returns represented below were calculated based on the current stock and option pricing for RSG on 4/22/2024 before commissions.
*Trading incurs risk and some people lose money trading.
April 18th, 2024
RTX Shines Amid Market Weakness
On April 17th, we looked at a Daily Price Chart for General Dynamics Corp., noting that GD shares have retraced below the upper Keltner Channel into the ‘Buy Zone’.
For today’s Trade of the Day e-letter we will be looking at a daily price chart for Raytheon Technologies Corp. stock symbol: RTX.
Before breaking down RTX’s daily chart let’s first review what products and services the company offers.
RTX Corporation, an aerospace and defense company, provides systems and services for the commercial, military, and government customers in the United States and internationally. It operates through three segments: Collins Aerospace, Pratt & Whitney, and Raytheon. The Collins Aerospace Systems segment offers aerospace and defense products, and aftermarket service solutions for civil and military aircraft manufacturers and commercial airlines, as well as regional, business, and general aviation, defense, and commercial space operations.
Now, let’s begin to break down the Daily Price chart for RTX stock.
Below is a Daily Price chart with the 50-Day EMA and 100-Day EMA for RTX.
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 RTX Stock
As the chart shows, on January 12th, the RTX 50-Day EMA, crossed above the 100-Day EMA.
This crossover indicated the buying pressure for RTX 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 RTX stock is 107.00 per share.
Profit if RTX is Up, Down or Flat
Now, since RTX’s 50-Day EMA is 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 RTX call option spread.
For this option spread, the calculator analysis below reveals the cost of the spread is $310 (circled). The maximum risk for an option spread is the cost of the spread.
The analysis reveals that if RTX stock is flat or up at all at expiration the spread will realize a 61.3% return (circled).
And if RTX stock decreases 7.5% at option expiration, the option spread would make a 61.3% return (circled).
The prices and returns represented below were calculated based on the current stock and option pricing for RTX on 4/17/2024 before commissions.
Due to option pricing characteristics, this option spread has a ‘built in’ 61.3% 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.
Trade High Priced Stocks for $350 With Less Risk
One of the big advantages to trading option spreads is that spreads allow you to trade high price stocks like Amazon, Google, or Netflix for as little as $350. With an option spread you can control 100 shares of Netflix for $350. If you were to purchase 100 shares of Netflix at current prices it would cost about $61,000. With the stock purchase you are risking $61,000 but with a Netflix option spread that costs $350 your maximum risk is $350 so your dollar risk is lower with option spreads compared to stock purchases.
*Trading incurs risk and some people lose money trading.
April 16th, 2024
Hot Trade in the Utility Sector: NRG
On April 16th, Trade of the Day we will be exploring the On Balance Volume chart for NRG Energy Inc. (NRG).
NRG Energy Inc. is engaged in the production, sale and delivery of energy and energy products and services to residential, industrial as well as commercial consumers in major competitive power markets in the United States. They generate electricity and provide energy solutions and natural gas to millions of customers through their diverse portfolio of retail brands.
Confirming a Price Uptrend with OBV
On Balance Volume measures volume flow with a single Easy-to-Read Line. Volume flow precedes price movement and helps sustain the price uptrend. 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.
We can see from the OBV chart below that the On Balance Volume line for NRG 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.
Confirmed ‘Buy’ Signal for NRG
Since NRG’s OBV line is sloping up, the most likely future price movement for NRG is up, making NRG 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 NRG 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 NRG price to a 12.5% increase.
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 NRG stock increases 5.0% at option expiration to 76.60 (circled), the call option would make 34.1% before commission.
If NRG stock increases 12.5% at option expiration to 82.07 (circled), the call option would make 97.3% 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.
The prices and returns represented below were calculated based on the current stock and option pricing for NRG on 4/15/2024 before commissions.
*Trading incurs risk and some people lose money trading.
Optioneering Video from March 10 2024 VRT
April 11th, 2024
Buy Alert: AMAT Poised to Trade Higher
On April 11th, Trade of the Day e-letter we will be looking at Applied Materials, Inc. stock symbol: AMAT.
AMAT provides manufacturing equipment, services and software to the semiconductor, display and related industries. With its diverse technology capabilities, Applied delivers products and services that improve device performance, yield and cost.
Now, below is a Daily Price chart with the 50-Day EMA and 100-Day EMA for AMAT.
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 AMAT Stock
As the chart shows, on December 6th, the AMAT 50-Day EMA, crossed above the 100-Day EMA.
This crossover indicated the buying pressure for AMAT 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.
Profit if AMAT is Up, Down or Flat
Now, since AMAT’s 50-Day EMA is 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 an AMAT call option spread.
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 AMAT is flat, up at all, or down -7.5% at expiration the spread will realize 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*.
*Trading incurs risk and some people lose money trading.
Optioneering Video from March 3 2024 PI
April 4th, 2024
New Highs: Strong Buying Volume for MCK
Did you see this trade setup? Without this indicator, I wouldn’t have spotted it myself.
On April 4th we will be looking at an On Balance Volume chart for McKesson Corp. (MCK).McKesson Corporation provides healthcare services in the United States and internationally. It operates through four segments: U.S. Pharmaceutical, Prescription Technology Solutions (RxTS), Medical-Surgical Solutions, and International.
Confirming a Price Uptrend with OBV
We can see from the OBV chart below that the On Balance Volume line for MCK 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.
Confirmed ‘Buy’ Signal for MCK
Since MCK’s OBV line is sloping up, the most likely future price movement for MCK is up, making MCK a good candidate for a stock purchase or a call option spread. Today we are going to look at a potential call option spread for MCK.
The analysis reveals that if MCK stock is flat or up at all at expiration the spread will realize a 60.0% return (circled).
And if MCK stock decreases 7.5% at option expiration, the option spread would make a 58.7% return (circled).
Due to option pricing characteristics, this option spread has a ‘built in’ 60.0% 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.
Unlock the Secrets to My Successful Trading
*Trading incurs risk and some people lose money trading.
5
April 2nd, 2024
Momentum Drives GOOGL to New Highs
On April 2nd we showed you one of my favorite indicators and how I used it to find today’s fresh stock pick.
Today we are going to be analyzing the Moving Average Convergence/ Divergence (MACD) chart for Alphabet Inc. (GOOGL). Alphabet has evolved from primarily being a search-engine provider to cloud computing, ad-based video and music streaming, autonomous vehicles, healthcare providers and others. In the online search arena, Google is a monopoly with more than 94% of the online search volume and market.
MACD Indicator confirms Price Momentum
The GOOGL daily price chart below shows that GOOGL 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.
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.
Buy GOOGL 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 GOOGL’s bullish run is likely to continue, the stock should be purchased.
Now, since GOOGL’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 GOOGL call option purchase.
For this specific call option, the calculator analysis below reveals if GOOGL stock increases 5.0% at option expiration to 163.26 (circled), the call option would make 62.4% before commission.
If GOOGL stock increases 10.0% at option expiration to 171.04 (circled), the call option would make 131.5% before commission and outperform the stock return more than 13 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.
*Trading incurs risk and some people lose money trading.
Optioneering Video From February 25 2024 DASH
March 26th, 2024
Insurance ‘Buy’: WRB Moving Higher
On March 26, we looked at a Daily Price Chart of Cava Group Inc., noting that CAVA’s OBV line is sloping up, validating the stock’s recent bullish trend.
For today’s Trade of the Day e-letter we will be looking at a monthly chart for W.R. Berkley Corp. stock symbol: WRB.
Before breaking down WRB’s monthly chart let’s first review what products and services the company offers.
W. R. Berkley Corporation, an insurance holding company, operates as a commercial lines writers worldwide. It operates in two segments, Insurance and Reinsurance & Monoline Excess. The Insurance segment underwrites commercial insurance business, including excess and surplus lines, admitted lines, and specialty personal lines.
Now, let’s begin to break down the monthly chart for WRB stock.
Below is a 10-Month Simple Moving Average chart for W.R. Berkley Corp.
Buy WRB Stock
As the chart shows, in September, the WRB 1-Month Price, crossed above the 10-Month simple moving average (SMA).
This crossover indicated the buying pressure for WRB 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 WRB is 90.25 per share.
Elevate your portfolio with Chuck’s Lifetime Income Program for exclusive, actionable trade recommendations along with a treasure trove of trading insights!
109.4% Profit Potential for WRB Option
Now, since WRB’s 1-Month Price is trading above the 10-Month SMA 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 WRB 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 WRB 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 WRB option example, we used the 1% Rule to select the WRB 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 WRB in-the-money option strike price, WRB 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 WRB stock is flat at 86.72 at option expiration, it will only result in an 8.6% loss for the WRB 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 WRB on 3/25/2024 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 WRB stock increases 5.0% at option expiration to 91.06 (circled), the call option would make 50.4% before commission.
If WRB stock increases 10.0% at option expiration to 95.39 (circled), the call option would make 109.4% before commission and outperform the stock return nearly 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.
*Trading incurs risk and some people lose money trading.
March 21st, 2024
‘Buy’ Signal Indicated for Copart, Inc.
A great potential trade opportunity just popped up and I wanted to get it to you as
quickly as possible.
On March 21st, we will be looking at a Moving Average Convergence/ Divergence (MACD) chart for Copart, Inc. (CPRT). Copart, Inc. provides online auction and a wide range of remarketing services to process and sell salvage and clean title vehicles.
MACD Indicator confirms Price Momentum
The CPRT daily price chart below shows that CPRT 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.
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.
Buy CPRT 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.
Now, since CPRT’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 CPRT call option purchase.
For this specific call option, the calculator analysis below reveals if CPRT stock increases 5.0% at option expiration to 59.75 (circled), the call option would make 50.9% before commission.
If CPRT stock increases 10.0% at option expiration to 62.59 (circled), the call option would make 110.2% 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.
The prices and returns represented below were calculated based on the current stock and option pricing for CPRT on 3/20/2024 before commissions.
*Trading incurs risk and some people lose money trading.
March 14th, 2024
JPM: Stock Roaring to New Highs!
On March 13th, we looked at a Daily Price Chart of The Travelers Companies Inc., noting that TRV’s 50-Day EMA is trading above the 100-Day EMA signaling a ‘Buy’.
For today’s Trade of the Day we will be looking at a Daily Price chart for J.P. Morgan Chase & Co. stock symbol: JPM.
Before breaking down JPM’s daily price chart let’s first review which products and services are offered by the company.
J.P. Morgan Chase & Co. is one of the largest financial service firms in the world. J.P. Morgan organizes its business through five reportable segments: Consumer & Community Banking, Corporate & Investment Bank, Commercial Banking, Asset & Wealth Management, & Corporate.
Now, let’s begin to break down the Daily Price chart for JPM. Below is a Daily Price Chart with the price line displayed by an OHLC bar.
Buy JPM Stock
The Daily Price chart above shows that JPM stock has been hitting new 52-Week Highs regularly since mid-February.
Simply put, a stock does not just continually hit a series of new 52-Week Highs unless it is in a very strong bullish trend.
The Hughes Optioneering team looks for stocks that are making a series of 52-Week Highs as this is a good indicator that the stock is in a powerful uptrend.
You see, after a stock makes a series of two or more 52-Week Highs, the stock typically continues its price uptrend and should be purchased.
Our initial price target for JPM stock is 196.50 per share.
111.7% Profit Potential for JPM Option
Now, since JPM is currently making a series of new 52-Week Highs 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 JPM 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 JPM 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 JPM option example, we used the 1% Rule to select the JPM 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 JPM in-the-money option strike price, JPM 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 JPM stock is flat at 191.38 at option expiration, it will only result in a 2.4% loss for the JPM 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 JPM on 3/13/2024 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 JPM stock increases 5.0% at option expiration to 200.95 (circled), the call option would make 54.6% before commission.
If JPM stock increases 10.0% at option expiration to 210.52 (circled), the call option would make 111.7% 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.
*Trading incurs risk and some people lose money trading.
March 12th, 2024
Cardinal Health Primed to Move Higher
Did you spot this potential trade? If I hadn’t dialed in my options tools, I may have missed it as well.
On March 12th, we looked at Cardinal Health, Inc. (CAH). Cardinal Health Inc. is a nationwide drug distributor and provider of services to pharmacies, healthcare providers and manufacturers. The company has two reporting segments: Pharmaceutical and Medical. The Pharmaceutical segment is the second largest pharmaceutical distributor in the United States and the largest nuclear pharmacy.
How I Confirm the Trend Using OBV
The CAH daily price chart below shows that CAH is in a price uptrend as the current price is above the price CAH 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 uptrend. When a stock closes up, volume is added to the 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 CAH 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.
Time to Buy CAH
Since CAH’s OBV line is sloping up, the most likely future price movement for CAH is up, making CAH 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 CAH call option purchase.
The prices and returns represented below were calculated based on the current stock and option pricing for CAH on 3/11/2024 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 CAH stock increases 5.0% at option expiration to 121.25 (circled), the call option would make 48.4% before commission.
If CAH stock increases 10.0% at option expiration to 127.03 (circled), the call option would make 101.2% before commission and outperform the stock return more than 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.
The prices and returns represented below were calculated based on the current stock and option pricing for CAH on 3/11/2024 before commissions.
*Trading incurs risk and some people lose money trading.
Optioneering Video from January 21, 2024 NUVL
March 7th, 2024
Time to Buy IR? Let’s Check the Charts
On March 6th, we looked at a Daily Price Chart of KLA Corp., noting that KLAC’s OBV line is sloping up, validating the recent bullish trend.
For today’s Trade of the Day we will be looking at a Keltner Channel chart for Ingersoll Rand Inc. (IR). Ingersoll Rand Inc. is a global industrial company, with expertise in industrial and mission-critical flow creation technologies. It has 2 segments. Industrial Technologies & Services segment engages in manufacturing products, including air compressors, couplers, vacuum pumps, power tools, blowers and others.
Take a look at the chart below.
Buy IR Stock
The IR daily price chart shows that the stock is in a strong price uptrend and has become overbought several times. You can see this as IR has traded above the Upper Keltner Channel on multiple occasions recently.
But, in every scenario when IR became overbought, the stock soon experienced a pullback.
Finding opportunities when a stock experiences a pullback is why the Hughes Optioneering Team uses the Keltner Channels. They help us find a lower-risk entry point.
The Keltner Channel “Buy Zone” occurs when a stock is trading below the upper Keltner Channel. Once the daily price is trading below the upper channel, it provides a lower-risk buying opportunity as the stock is likely to rally.
87.0% Profit Potential for IR Option
Now, since IR stock is currently trading in the Keltner Channel ‘Buy Zone’ and it’s bullish run is likely to continue, let’s use the Hughes Optioneering calculator to look at the potential returns for an IR call option purchase.
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 IR stock increases 5.0% at option expiration to 94.75 (circled), the call option would make 43.2% before commission.
If IR stock increases 10.0% at option expiration to 99.26 (circled), the call option would make 87.0% 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.
The prices and returns represented below were calculated based on the current stock and option pricing for IR on 3/6/2024 before commissions.
*Trading incurs risk and some people lose money trading.
March 5th, 2024
Momentum Boosts Wells Fargo Higher
Did you spot this potential trade? If I hadn’t dialed in my options tools, I may have missed it as well. You may recognize the company we are looking at today, Wells Fargo & Co. (WFC). Even if you don’t, what you really need to know is what I spotted on WFC’s chart today.
MACD Indicator Confirms Price Momentum
The WFC daily price chart below shows that WFC 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.
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. This creates a ‘Buy’ signal.
Time to Buy WFC
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.
Now, since WFC’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 WFC call option purchase.
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 WFC stock increases 5.0% at option expiration to 58.60 (circled), the call option would make 43.8% before commission.
If WFC stock increases 10.0% at option expiration to 61.39 (circled), the call option would make 90.5% before commission and outperform the stock return more than 9 to 1*.
Optioneering Video from January 14, 2024 VRT
February 29th, 2024
Breaking Down XLF’s Technical ‘Buy’
On February 28th, we looked at a Daily Price Chart for the SPDR S&P Retail ETF, noting that XRT has been making a series of new 52-Week Highs.
For today’s Trade of the Day e-letter we will be looking at a daily price chart for the Financial Select Sector SPDR ETF, symbol: XLF.
Before breaking down XLF’s daily chart let’s first review the investment objective of the ETF.
The Financial Select Sector SPDR Fund seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Financial Select Sector Index.
Now, let’s begin to break down the Daily Price chart for the XLF ETF.
Below is a Daily Price chart with the 50-Day EMA and 100-Day EMA for XLF.
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 ETF 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 ETF’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 the XLF ETF
As the chart shows, on November 17th, the XLF 50-Day EMA, crossed above the 100-Day EMA.
This crossover indicated the buying pressure for XLF exceeded the selling pressure. For this kind of crossover to occur, an XLF 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 ETF is more likely to keep trading at new highs and should be purchased.
Our initial price target for the XLF ETF is 42.50 per share.
109.5% Profit Potential for XLF Option
Now, since XLF’s 50-Day EMA is trading above the 100-Day EMA this means the ETF’s bullish rally will likely continue. Let’s use the Hughes Optioneering calculator to look at the potential returns for an XLF 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 XLF 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 XLF option example, we used the 1% Rule to select the XLF 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 XLF in-the-money option strike price, the XLF ETF 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 ETF closes flat at option expiration it will result in a 100% loss for your option trade! In this example, if XLF is flat at 40.36 at option expiration, it will only result in a 4.8% loss for the XLF 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 ETFs.
The prices and returns represented below were calculated based on the current ETF and option pricing for XLF on 2/28/2024 before commissions.
When you purchase a call option, there is no limit on the profit potential of the call if the underlying ETF continues to move up in price.
For this specific call option, the calculator analysis below reveals if XLF increases 5.0% at option expiration to 42.38 (circled), the call option would make 52.4% before commission.
If XLF increases 10.0% at option expiration to 44.40 (circled), the call option would make 109.5% before commission and outperform the ETF return nearly 11 to 1*.
The leverage provided by call options allows you to maximize potential returns on bullish ETFS.
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.
February 27th, 2024
Momentum Drives Vertiv’s Bullish Surge
It can be difficult to find the best new opportunity by just looking at the daily chart for a stock. That’s why I use indicators that highlight trends that are occurring “under the surface” to better pick my trades.
Today we are going to look at one of my favorite indicators along with my newest pick that it helped me spot! Then we will look at an option trade for the stock and see how options allow us to amplify potential returns while also providing downside protection for our trades.
On February 27th Trade of the Day we will be looked at an On Balance Volume chart for Vertiv Holdings, LLC stock symbol: VRT.
Vertiv Holdings Co, together with its subsidiaries, designs, manufactures, and services critical digital infrastructure technologies and life cycle services for data centers, communication networks, and commercial and industrial environments in the Americas, the Asia Pacific, Europe, the Middle East, and Africa. It offers AC and DC power management products, switchgear and busbar products, thermal management products, integrated rack systems, modular solutions, and management systems for monitoring and controlling digital infrastructure.
Confirming a Price Uptrend with OBV
The VRT daily price chart below shows that VRT is in a price uptrend as the current price is above the price VRT 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 uptrend. 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.
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 VRT is sloping up. An up-sloping line indicates that the volume is heavier on up days and buying pressure is exceeding selling pressure.
‘Buy’ Signal for VRT
Since VRT’s OBV line is sloping up, the most likely future price movement for VRT is up, making VRT a good candidate for a stock purchase or a call option spread.
Let’s use the Hughes Optioneering calculator to look at the potential returns for a VRT debit spread.
How Option Spreads Build in Profit Potential
For this option spread, the calculator analysis below reveals the cost of the spread is $310 (circled). The maximum risk for an option spread is the cost of the spread.
The analysis reveals that if VRT stock is flat, up at all, or down 7.5% at expiration the spread will realize a 61.3% return (circled).
Due to option pricing characteristics, this option spread has a ‘built in’ 61.3% profit potential when the trade was identified*. The prices and returns represented below were calculated based on the current stock and option pricing for VRT on 2/26/2024 before commissions.
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.
*Trading incurs risk and some people lose money trading.
Optioneering Video from January 7, 2024 PDD
February 22nd, 2024
Industrial Truck-Maker Booming Higher
On Feb 21st, I am going to walk you through a great potential trade. Not only will we look at which ticker is setting up, I will layout the amazing indicator that helped me spot this one and many others.
In this example chart of PACCAR, Inc. (PCAR), the OnBalanceVolume is showing us what we need to know.
Confirming a Price Uptrend with OBV
OnBalanceVolume measures volume flow with a single Easy-to-Read Line. Volume flow precedes price movement and helps sustain the price uptrend. 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.
We can see from the OBV chart below that the OnBalanceVolume line for PCAR 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, OnBalanceVolume is a simple indicator to use that confirms the price uptrend and its sustainability.
Confirmed ‘Buy’ Signal for PCAR
Since PCAR’s OBV line is sloping up, the most likely future price movement for PCAR is up, making PCAR a good candidate for a stock purchase or a call option spread.
Let’s use the Hughes Optioneering calculator to look at the potential returns for a PCAR debit spread.
Built in Profit Potential
For this option spread, the calculator analysis below reveals the cost of the spread is $300 (circled).
The analysis reveals that if PCAR stock is flat, up at all, or down 7.5% at expiration the spread will realize a 66.7% return (circled).
Due to option pricing characteristics, this option spread has a ‘built in’ 66.7% profit potential when the trade was identified*.
The prices and returns represented below were calculated based on the current stock and option pricing for PCARon 2/21/2024 before commissions.
*Trading incurs risk and some people lose money trading.
February 20th, 2024
Apollo Soars to New Highs!
On Friday February 16th, we looked at a Daily Price Chart of TJX Cos., Inc., noting that TJX’s OBV line was sloping up, validating the stock’s recent bullish trend.
For today’s Trade of the Day we will be looking at a Daily Price chart for Apollo Global Management LLC (APO).
Apollo Global Management, Inc. is a private equity firm specializing in investments in credit, private equity and real estate markets. The firm’s private equity investments include traditional buyouts, recapitalization, distressed buyouts and debt investments in real estate, corporate partner buyouts, distressed asset, corporate carve-outs, middle market, growth capital, turnaround, bridge, corporate restructuring, special situation, acquisition, and industry consolidation transactions.
Now, let’s begin to break down the Daily Price chart for APO. Take a look at the chart below.
Time to Buy APO
The Daily Price chart above shows that APO stock has been hitting new 52-Week Highs regularly since late January.
Simply put, a stock does not just continually hit a series of new 52-Week Highs unless it is in a very strong bullish trend.
The Hughes Optioneering team looks for stocks that are making a series of 52-Week Highs as this is a good indicator that the stock is in a powerful uptrend.
You see, after a stock makes a series of two or more 52-Week Highs, the stock typically continues its price uptrend and should be purchased.
Our initial price target for APO stock is 120.00 per share.
Now, since APO stock is currently making a series of new 52-Week Highs 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 APO 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 APO price to a 12.5% increase.
The prices and returns represented below were calculated based on the current stock and option pricing for APO on 2/16/2024 before commissions.
Optioneering Video from December 31, 2023 APP
On February 15th, 2024 we shared
Buy CRH’s Strong Trend?
Did you spot this potential trade? If I hadn’t dialed in my options tools, I may have missed it as well. The company we are looking at today is CRH, PLC (CRH).
CRH plc, through its subsidiaries, manufactures and distributes building materials in Ireland and internationally. It operates through three segments: Americas Materials, Europe Materials, and Building Products. The company manufactures and supplies cement, lime, aggregates, precast, ready mixed concrete, and asphalt products; concrete masonry and hardscape products comprising pavers, kerbs, retaining walls, and related patio products.
Now, let’s begin to break down the Daily Price chart for CRH stock. Check out the chart below.
Time to Buy CRH
As the chart shows, on November 25th, 2022 the CRH 50-Day EMA, crossed above the 100-Day EMA.
This crossover indicated the buying pressure for CRH 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.
How I Put the Odds in My Favor
Now, since CRH’s 50-Day EMA is 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 CRH call option spread.
For this option spread, the calculator analysis below reveals the cost of the spread is $425 (circled). The maximum risk for an option spread is the cost of the spread.
The analysis reveals that if CRH stock is flat or up at all at expiration the spread will realize a 76.5% return (circled).
And if CRH stock decreases 7.5% at option expiration, the option spread would make a 56.3% return (circled).
Due to option pricing characteristics, this option spread has a ‘built in’ 76.5% profit potential when the trade was identified*.
The prices and returns represented below were calculated based on the current stock and option pricing for CRH on 2/14/2024 before commissions.
*Trading incurs risk and some people lose money trading.
MOMENTUM BUILDS BEHIND INSURER BRO
Posted by Chuck Hughes | Feb 13, 2024 | Chuck's Trade of the Day
Today I am going to walk you through a great potential trade. Not only will we look at which ticker is setting up, I will layout the amazing indicator that helped me spot this one and many others.
For yesterday, Trade of the Day e-letter we will be looking at a Moving Average Convergence/ Divergence (MACD) chart for Brown & Brown Inc. stock symbol: BRO.
Brown & Brown, Inc. markets and sells insurance products and services primarily in the United States and other parts of the world. The company reports through four segments: The Retail segment provides a broad range of insurance products and services to commercial, public and quasi-public entities and to professional and individual customers.
MACD Buy Signal
The BRO daily price chart below shows that BRO 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.
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.
Buy BRO 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 BRO’s bullish run is likely to continue, the stock should be purchased.
114.4% Profit Potential for BRO Option
Now, since BRO’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 BRO 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 BRO 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 BRO option example, we used the 1% Rule to select the BRO 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 BRO in-the-money option strike price, BRO 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 BRO stock is flat at 80.95 at option expiration, it will only result in a 9.2% loss for the BRO 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 BRO on 2/13/2024 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 BRO stock increases 5.0% at option expiration to 85.00 (circled), the call option would make 52.6% before commission.
If BRO stock increases 10.0% at option expiration to 89.05 (circled), the call option would make 114.4% 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.
Optioneering Video from December 24, 2023 SYM
BUILDING PORTFOLIO INFRASTRUCTURE WITH URI
Posted by Chuck Hughes | Feb 7, 2024 | Chuck's Trade of the Day
Chuck Hughes here. I just found a great trade set up for URI that I wanted to highlight for you. This example will show you how I’m able to profit 81.8% when a stock increases in price, stays flat, or even drops -7.5%. I know, it sounds too good to be true. But let me walk you through it.
United Rentals, Inc. (URI) is the largest equipment rental company in the world, with an integrated network of rental locations in United States, Canada and Europe. The company’s customer base includes construction and industrial companies, utilities, municipalities, government agencies, independent contractors and homeowners and other individuals that use equipment for projects that range from simple repairs to major renovations.
Below is a Daily Price chart with the 50-Day EMA and 100-Day EMA for URI.
Time to Buy?
As the chart shows, on June 21st, the URI 50-Day EMA, crossed above the 100-Day EMA.
This crossover indicated the buying pressure for URI 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.
Increasing the Odds of Profitability
Now, since URI’s 50-Day EMA is 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 URI call option spread.
The analysis reveals that if URI stock is flat or up at all at expiration the spread will realize an 81.8% return (circled).
And if URI stock decreases 7.5% at option expiration, the option spread would make an 81.8% return (circled).
Due to option pricing characteristics, this option spread has a ‘built in’ 81.8% 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.
CB’S SURGE: INSURANCE STOCKS TRIUMPH
Posted by Chuck Hughes | Feb 6, 2024 | Chuck's Trade of the Day
Did you spot this potential trade? If I hadn’t dialed in my options tools, I may have missed it as well. You may recognize the company we are looking at today, Chubb Ltd. (CB). But even if you don’t, what you really need is the chart.
When I was a pilot I couldn’t fly by just looking out the window. I had to use my gauges and instruments. Stock charts are similar to those gauges and make it possible to be more accurate in spotting great set ups.
On this chart we are going to look at the 10-Month Simple Moving Average. If you want more info on this indicator, click here.
As the chart shows, in September, the CB 1-Month Price, crossed above the 10-Month simple moving average (SMA).
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.
The good news is CMG is still above the 10-Month SMA so it has solid momentum to the upside and conditions are ripe for a bullish trade. But with just a couple more simple steps we can increase the potential for this trade using options.
How To Juice Up The Horsepower Using Options
Now, since CB’s 1-Month Price is trading above the 10-Month SMA 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 CB call option purchase.
Take a look at the calculator below.
For this specific call option, the calculator analysis below reveals if CB stock increases 5.0% at option expiration to 261.71 (circled), the call option would make 76.9% before commission.
If CB stock increases 10.0% at option expiration to 274.18 (circled), the call option would make 159.4% before commission and outperform the stock return nearly 16 to 1*.
The leverage provided by call options allows you to maximize potential returns on bullish stocks.
*Trading incurs risk and some people lose money trading.
Optioneering Video from December 17, 2023 IMVT
TIME TO BUY THE DIP FOR BWXT?
Posted by Chuck Hughes | Feb 1, 2024 | Chuck's Trade of the Day
On Jan 31st, we looked at a Daily Price Chart of Check Point Software Technologies, Ltd., noting that CHKP has been making a series of new 52-Week Highs recently.
For today’s Trade of the Day we will be looking at a Keltner Channel chart for BWX Technologies, Inc. stock symbol: BWXT.
Before breaking down BWXT’s daily Keltner Channel chart let’s first review which products and services are offered by the company.
BWX Technologies, Inc. supplies precision manufactured components and services to the commercial nuclear power industry. The company offers technical, management and site services to governments in complex facilities and environmental remediation activities.
Unlock Chuck’s trading insights with our free text alerts! Join now for expert tips, live event notifications, and exclusive discounts.
Now, let’s begin to break down the Keltner Channel chart for BWXT. Below is a Daily Price Chart and the three Keltner Channels for BWXT stock.
Buy BWXT 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 above the upper Keltner Channel, this signals that the stock is temporarily overbought and subject to a retracement.
Even stocks that are in the strongest bull trends do not advance in a straight line. There are always price retracements along the way. When a stock becomes overbought, its price will typically decline soon after as the inevitable profit taking occurs.
The BWXT daily price chart shows that the stock is in a strong price uptrend and has become overbought several times. You can see this as BWXT has traded above the Upper Keltner Channel on multiple occasions recently.
But, in every scenario when BWXT became overbought, the stock soon experienced a pullback.
Finding opportunities when a stock experiences a pullback is why the Hughes Optioneering Team uses the Keltner Channels. They help us find a lower-risk entry point.
The Keltner Channel “Buy Zone” occurs when a stock is trading below the upper Keltner Channel. Once the daily price is trading below the upper channel, it provides a lower-risk buying opportunity as the stock is likely to rally.
Our initial price target for BWXT stock is 86.50 per share.
Profit if BWXT is Up, Down or Flat
Now, since BWXT is currently trading in the Keltner Channel ‘Buy Zone’ this offers a prime trade entry opportunity. Let’s use the Hughes Optioneering calculator to look at the potential returns for a BWXT 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 BWXT 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 BWXT on 1/31/2024 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 BWXT stock is flat or up at all at expiration the spread will realize a 51.5% return (circled).
And if BWXT stock decreases 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*.
Managing Trade Cost
One of the big advantages to trading option spreads is that spreads allow you to trade high price stocks like Amazon, Google, or Netflix for as little as $350. With an option spread you can control 100 shares of Netflix for $350.
If you were to purchase 100 shares of Netflix at current prices it would cost about $56,000. With the stock purchase you are risking $56,000 but with a Netflix option spread that costs $350 your maximum risk is $350 so your dollar risk is lower with option spreads compared to stock purchases.
*Trading incurs risk and some people lose money trading.
MOMENTUM BOOSTS MRK’S HEALTHY SURGE
Posted by Chuck Hughes | Jan 30, 2024 | Chuck's Trade of the Day | 0
I just spotted a signal from one of my most reliable indicators. Let me take you through how I spotted it and what it could potentially turn into.
Finding a stock with strong upside momentum can create a winning trade environment. When you know conditions are right for trading, you can set up a trade that fits your personal risk and profit profile. While trading always includes a risk of loss, our goal is to look for trades that help to manage as much of that risk as possible.
This is why I like the Moving Average Convergence/ Divergence (MACD) indicator and especially when it highlights a pattern like we are seeing in for Merck & Co., Inc. (MRK) is a healthcare stock that you can see on the chart below.
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.
Amplify Potential Returns!
Since MRK’s bullish run is likely to 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 goal of this example is to demonstrate the powerful profit potential available from trading options compared to stocks.
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 127.34 (circled), the call option would make 55.8% before commission.
If MRK stock increases 10.0% at option expiration to 133.41 (circled), the call option would make 117.3% before commission and outperform the stock return nearly 12 to 1*.
The prices and returns represented below were calculated based on the current stock and option pricing for MRK on 1/29/2024 before commissions.
*Trading incurs risk and some people lose money trading.
We all want our picks to move in our favor and I think that COST is a ticker that has a high likelihood of doing just that. Any time we see a stock with freight train momentum it catches our attention, and we immediately look at what it has the power to do for us.
A great way to identify price momentum with that velocity is to look for stocks that have gone above their 52 week high. By coupling that insight with the leverage of options, it can provide big potential wins. Take a look at the chart and then we’ll show you how are able to profit without the stock moving at all.
Any time a stock is pushing in an upward direction, especially above its 52 week high on multiple recent occasions, that momentum will typically continue. Our initial price target for COST stock is 715.00 per share and we are taking a look at what a call option spread could do if COST keep climbing, goes down in price, or doesn’t move at all.
For this option spread, the calculator analysis below reveals the cost of the spread is $285 (circled). The maximum risk for an option spread is the cost of the spread.
The analysis reveals that if COST stock is up at all, flat, or down -7.5% at expiration the spread will realize a 75.4% return (circled).
*Trading incurs risk and some people lose money trading.
Interested in Chuck's Hand-Picked Trades? Call...
