Yesterday, we looked at a Daily Price Chart for Moody’s Co., noting that the stock’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 Berkshire Hathaway, Inc., stock symbol: BRKB.
Before breaking down BRKB’s daily price chart let’s first review which products and services are offered by the company.
Berkshire Hathaway Inc., through its subsidiaries, engages in the insurance, freight rail transportation, and utility businesses worldwide. It provides property, casualty, life, accident, and health insurance and reinsurance; and operates railroad systems in North America. The company also generates, transmits, stores, and distributes electricity from natural gas, coal, wind, solar, hydroelectric, nuclear, and geothermal sources; operates natural gas distribution and storage facilities, interstate pipelines, liquefied natural gas facilities, and compressor and meter stations; and holds interest in coal mining assets.
Now, let’s begin to break down the Daily Price chart for BRKB. Below is a Daily Price Chart with the price line displayed by an OHLC bar.
Buy BRKB Stock
The Daily Price chart above shows that BRKB stock began reaching a series of higher highs and higher lows in mid-June.
This pattern of bullish trading suggests the stock will march on to a further advance.
You see, after a stock makes a series of two or more higher highs and higher lows, the stock typically continues its price up trend and should be purchased.
Our initial price target for BRKB stock is 362.50 per share.
154.9% Profit Potential for BRKB Option
Now, since BRKB stock is currently making a series of higher highs and higher lows 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 BRKB 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 BRKB 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 BRKB option example, we used the 1% Rule to select the BRKB 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 BRKB in-the-money option strike price, BRKB 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 BRKB stock is flat at 349.31 at option expiration, it will only result in a 9.3% loss for the BRKB 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 BRKB on 7/27/2023 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 BRKB stock increases 5.0% at option expiration to 366.78 (circled), the call option would make 72.8% before commission.
If BRKB stock increases 10.0% at option expiration to 384.24 (circled), the call option would make 154.9% before commission and outperform the stock return more than 15 to 1*.
The leverage provided by call options allows you to maximize potential returns on bullish stocks.
The Hughes Optioneering Team is here to help you identify profit opportunities just like this one.
Interested in accessing the Optioneering Calculators? Join one of Chuck’s Trading Services for unlimited access! The Optioneering Team has option calculators for six different option strategies that allow you to calculate the profit potential for an option trade before you take the trade.
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Wishing You the Best in Investing Success,
Editor, Trade of the Day
Have any questions? Email us at firstname.lastname@example.org
*Trading incurs risk and some people lose money trading.