Dear Reader,

Did you spot this potential trade? If I hadn’t dialed in my options tools, I may have missed it as well.

Today we are looking at Cardinal Health, Inc. (CAH). Cardinal Health Inc. is a nationwide drug distributor and provider of services to pharmacies, healthcare providers and manufacturers. The company has two reporting segments: Pharmaceutical and Medical. The Pharmaceutical segment is the second largest pharmaceutical distributor in the United States and the largest nuclear pharmacy.

How I Confirm the Trend Using OBV

The CAH daily price chart below shows that CAH is in a price uptrend as the current price is above the price CAH traded at six months ago (circled). The On Balance Volume chart is below the daily chart.

On Balance Volume measures volume flow with a single Easy-to-Read Line. Volume flow precedes price movement and helps sustain the price uptrend. When a stock closes up, volume is added to the line. Volume flow precedes price and is the key to measuring the validity and sustainability of a price trend. 

We can see from the OBV chart below that the On Balance Volume line for CAH is sloping up. An up-sloping line indicates that the volume is heavier on up days and buying pressure is exceeding selling pressure. Buying pressure must continue to exceed selling pressure in order to sustain a price uptrend. So, On Balance Volume is a simple indicator to use that confirms the price uptrend and its sustainability.

Time to Buy CAH

Since CAH’s OBV line is sloping up, the most likely future price movement for CAH is up, making CAH a good candidate for a stock purchase or a call option purchase.

Let’s use the Hughes Optioneering calculator to look at the potential returns for a CAH call option purchase.

The prices and returns represented below were calculated based on the current stock and option pricing for CAH on 3/11/2024 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 CAH stock increases 5.0% at option expiration to 121.25 (circled), the call option would make 48.4% before commission. 

If CAH stock increases 10.0% at option expiration to 127.03 (circled), the call option would make 101.2% before commission and outperform the stock return more than 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 profit opportunities just like this one.

The prices and returns represented below were calculated based on the current stock and option pricing for CAH on 3/11/2024 before commissions.

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Wishing You the Best in Investing Success,

Chuck Hughes

Editor, Trade of the Day

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