Yesterday, we looked at a Daily Price Chart of Hersey Foods Corp. noting the stock’s 24/52 Day MACD line is above the 18-Day EMA signaling a bullish stock.
For today’s Trade of the Day we will be looking at a Keltner Channel chart for McKesson Corp. stock symbol: MCK.
Before breaking down MCK’s daily Keltner Channel chart let’s first review which products and services are offered by the company.
McKesson Corporation provides healthcare supply chain management, retail pharmacy, community oncology and specialty care, and healthcare information solutions in the United States and internationally. It operates through four segments: U.S. Pharmaceutical, International, Medical-Surgical Solutions, and Prescription Technology Solutions (RxTS)
Now, let’s begin to break down the Keltner Channel chart for MCK. Below is a Daily Price Chart and the three Keltner Channels for MCK stock.
Buy MCK 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 MCK daily price chart shows that the stock is in a strong price uptrend and has become overbought several times. You can see this as MCK has traded above the Upper Keltner Channel on multiple occasions recently.
But, in every scenario when MCK 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 MCK stock is 264.50 per share.
95.5% Profit Potential for MCK Option
Now, since MCK stock 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 a MCK 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 MCK 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 MCK option example, we used the 1% Rule to select the MCK 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 MCK in-the-money option strike price, MCK 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 MCK stock is flat at 251.84 at option expiration, it will only result in a 9.2% loss for the MCK 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 MCK on 1/20/2022 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 MCK stock increases 5.0% at option expiration to 264.43 (circled), the call option would make 43.2% before commission.
If MCK stock increases 10.0% at option expiration to 277.02 (circled), the call option would make 95.5% before commission and outperform the stock return nearly 10 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 winning trades 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.
Chuck’s Trades Are Within Your Reach
Do you want to start receiving hand-picked trades from 10-Time Trading Champion, Chuck Hughes?
As a Trade of the Day subscriber, Chuck is offering you a special discount on his Weekly Option Alert Trading Service.
Just call Brad at 1-866-661-5664 or 1-310-647-5664 to join and use the code “Optioneering VIP” to receive special pricing!
Wishing You the Best in Investing Success,
Editor, Trade of the Day
Have any questions? Email us at firstname.lastname@example.org
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