Yesterday, we looked at a Daily Price Chart of Skyworks Solutions Inc. noting the stock’s 50-Day EMA is trading below the 100-Day EMA signaling a ‘Sell’.
For today’s Trade of the Day we will be looking at a Keltner Channel chart for Elevance Health, Inc. stock symbol: ELV.
Before breaking down ELV’s daily Keltner Channel chart let’s first review which products and services are offered by the company.
Elevance Health Inc. operates as a health benefits company. It supports consumers, families, and communities across the entire care journey connecting to the care, support, and resources to lead healthier lives. It serves approximately 118 million people through a portfolio of medical, digital, pharmacy, behavioral, clinical, and care solutions.
Now, let’s begin to break down the Keltner Channel chart for ELV. Below is a Daily Price Chart and the three Keltner Channels for ELV stock.
Buy ELV 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, it’s price will typically decline soon after as the inevitable profit taking occurs.
The ELV daily price chart shows that the stock is in a strong price uptrend and has become overbought several times. You can see this as ELV has traded above the Upper Keltner Channel on multiple occasions recently.
But, in every scenario when ELV 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 ELV stock is 535.00 per share.
213.2% Profit Potential for ELV Option
Now, since ELV stock retraced below the upper Keltner Channel, this provides us with a prime trade entry opportunity. Let’s use the Hughes Optioneering calculator to look at the potential returns for an ELV 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 ELV 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 ELV option example, we used the 1% Rule to select the ELV 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 ELV in-the-money option strike price, ELV 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 ELV stock is flat at 521.88 at option expiration, it will only result in a 23.4% loss for the ELV 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 ELV on 11/10/2022 before commissions.
When you purchase a call option, there is no limit on the profit potential of the call if the underlying stock continues to move up in price.
For this specific call option, the calculator analysis below reveals if ELV stock increases 5.0% at option expiration to 547.97 (circled), the call option would make 94.9% before commission.
If ELV stock increases 10.0% at option expiration to 574.07 (circled), the call option would make 213.2% before commission and outperform the stock return more than 21 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.
Average Portfolio Return of 106.3%
Below is a screenshot of the current open trade profit opportunities from Chuck’s Weekly Option Alert Trading Service. There are currently $177,948.50 in open trade profit opportunities with an average portfolio return of 106.3% demonstrating the ability of the Optioneering Strategy to deliver substantial returns with no losing portfolios**.
**Open trade profit results represent the open trade profit performance for the portfolio displayed on 11/10/22. Open trade profits may have increased or decreased when trades were closed out. Trading incurs risk and some people lose money trading. Past performance does not necessarily predict future results. Member profits and losses are not tracked. Profit potential is taken from results of signaled trades, not actual member results. Not all members make the trades.
Get Trade Insights Directly From Chuck
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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.
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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.