ALL: High Conviction Trade Setup

Dear Reader,

Yesterday, we looked at a Daily Price Chart of Duke Energy Corp., noting that DUK has been making a series of higher highs and higher lows recently.

For today’s Trade of the Day we will be looking at a Keltner Channel chart for Allstate Corp. stock symbol: ALL.

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

The Allstate Corporation is the third-largest property-casualty insurer and the largest publicly-held personal lines carrier in the U.S. The company also provides a range of life insurance and investment products to its diverse customer base.

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

Buy ALL 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 ALL daily price chart shows that the stock is in a strong price uptrend and has become overbought several times. You can see this as ALL has traded above the Upper Keltner Channel on multiple occasions recently.

But, in every scenario when ALL 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 ALL stock is 192.00 per share.

Profit if ALL is Up, Down, or Flat

Now, since ALL is currently trading in the Keltner Channel ‘Buy Zone’ this offers us a prime trade entry opportunity. Let’s use the Hughes Optioneering calculator to look at the potential returns for an ALL 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 ALL 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 ALL on 9/11/2024 before commissions.

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Built in Profit Potential

For this option spread, the calculator analysis below reveals the cost of the spread is $295 (circled). The maximum risk for an option spread is the cost of the spread.

The analysis reveals that if ALL stock is flat or up at all at expiration the spread will realize a 69.5% return (circled).

And if ALL stock decreases 7.5% at option expiration, the option spread would make a 61.8% return (circled).

Due to option pricing characteristics, this option spread has a ‘built in’ 69.5% profit potential when the trade was identified*.

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

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

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

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

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Wishing You the Best in Investing Success,