Yesterday, we looked at a Monthly Price Chart for AmerisourceBergen Corp., noting that ABC’s 1-Month Price is trading above the 10-Month SMA signaling a ‘Buy’.
For today’s Trade of the Day we will be looking at a Daily Price chart for Cardinal Health, Inc. stock symbol: CAH.
Before breaking down CAH’s daily price chart let’s first review which products and services are offered by the company.
Cardinal Health, Inc. operates as an integrated healthcare services and products company in the United States, Canada, Europe, Asia, and internationally. It provides customized solutions for hospitals, healthcare systems, pharmacies, ambulatory surgery centers, clinical laboratories, physician offices, and patients in the home. The company operates in two segments, Pharmaceutical and Medical.
Now, let’s begin to break down the Daily Price chart for CAH. Below is a Daily Price Chart with the price line displayed by an OHLC bar.
Buy CAH Stock
The Daily Price chart above shows that CAH stock began reaching a series of higher highs and higher lows since 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 CAH stock is 96.50 per share.
128.1% Profit Potential for CAH Option
Now, since CAH 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 CAH 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 CAH 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 CAH option example, we used the 1% Rule to select the CAH 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 CAH in-the-money option strike price, CAH 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 CAH stock is flat at 91.79 at option expiration, it will only result in a 3.0% loss for the CAH 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 CAH on 6/21/2023 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 CAH stock increases 5.0% at option expiration to 96.38 (circled), the call option would make 62.6% before commission.
If CAH stock increases 10.0% at option expiration to 100.97 (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.
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Wishing You the Best in Investing Success,
Editor, Trade of the Day
Have any questions? Email us at email@example.com
*Trading incurs risk and some people lose money trading.