Yesterday, we looked at a Daily Price Chart of MercadoLibre Inc. noting the stock 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 Hershey Foods Corp. stock symbol: HSY.
Before breaking down HSY’s daily Keltner Channel chart let’s first review which products and services are offered by the company.
The Hershey Company, together with its subsidiaries, engages in the manufacture and sale of confectionery products and pantry items in the United States and internationally. The company operates through three segments: North America Confectionery, North America Salty Snacks, and International. It offers chocolate and non-chocolate confectionery products; gum and mint refreshment products, including mints, chewing gums, and bubble gums; pantry items, such as baking ingredients, toppings, beverages, and sundae syrups; and snack items comprising spreads, bars, snack bites, mixes, popcorn, and pretzels.
Now, let’s begin to break down the Keltner Channel chart for HSY. Below is a Daily Price Chart and the three Keltner Channels for HSY stock.
Buy HSY 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 HSY daily price chart shows that the stock is in a strong price uptrend and has become overbought several times. You can see this as HSY has traded above the Upper Keltner Channel on multiple occasions recently.
But, in every scenario when HSY 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 HSY stock is 270.00 per share.
128.1% Profit Potential for HSY Option
Now, since HSY stock is currently trading in the Keltner Channel ‘Buy Zone’, this provides us a prime trade entry opportunity. Let’s use the Hughes Optioneering calculator to look at the potential returns for a HSY 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 HSY 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 HSY option example, we used the 1% Rule to select the HSY 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 HSY in-the-money option strike price, HSY 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 HSY stock is flat at 258.00 at option expiration, it will only result in a 6.3% loss for the HSY 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 HSY on 4/13/2023 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 HSY stock increases 5.0% at option expiration to 270.90 (circled), the call option would make 60.9% before commission.
If HSY stock increases 10.0% at option expiration to 283.80 (circled), the call option would make 128.1% before commission and outperform the stock return nearly 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.
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 112.4%
Below is a screenshot of the current open trade profit opportunities from Chuck’s Weekly Option Alert Trading Service. There are currently $150,568.16 in open trade profit opportunities with an average portfolio return of 112.4% 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 4/13/23. 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.
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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.