Dear Reader,

Yesterday, we looked at a Daily Price Chart of Cardinal Health, Inc., noting that the stock’s 24/52 Day MACD is trading above the 18-Day EMA.

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

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

Fortinet, Inc. provides broad, integrated, and automated cybersecurity solutions in the Americas, Europe, the Middle East, Africa, and the Asia Pacific. It offers FortiGate hardware and software licenses that provide various security and networking functions, including firewall, intrusion prevention, anti-malware, virtual private network, application control, web filtering, anti-spam, and wide area network acceleration.  

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

Below is a 10-Month Simple Moving Average chart for Fortinet Inc.

Sell FTNT Stock

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

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

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

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

Our initial price target for FTNT is 45.65 per share.

Profit if FTNT is Down, Up, or Flat

Now, since FTNT’s 1-Month Price is trading below the 10-Month SMA, the stock will likely continue its trend downward. Let’s use the Hughes Optioneering calculator to look at the potential returns for a FTNT put option spread.

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

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

The prices and returns represented below were calculated based on the current stock and option pricing for FTNT on 9/6/2022 before commissions.

Built 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 FTNT stock is flat or down at all at expiration the spread will realize a 61.3% return (circled). 

And if FTNT stock increases 10.0% at option expiration, the option spread would make 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*.

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, Netflix or Apple for as little as $350. With an option spread you can control 100 shares of Google for $350. If you were to purchase 100 shares of Google at current prices it would cost about $10,600. With the stock purchase you are risking $10,600 but with a Google option spread that costs $350 your maximum risk is $350 so your dollar risk is lower with option spreads compared to stock purchases.

Get Trade Insights Directly From Chuck

You can start getting market insights directly from 10-Time Trading Champion Chuck Hughes.

See what he’s trading and when with his exclusive Inner Circle Trading Service where he will send you his hand-picked stock and option trades.

Just call Brad at 1-866-661-5664 or 1-310-647-5664 to join or CLICK HERE to schedule a call! 

Wishing You the Best in Investing Success,

Chuck Hughes

Editor, Trade of the Day

Have any questions? Email us at dailytrade@chuckstod.com

*Trading incurs risk and some people lose money trading.