May 10th, 2022

Dear Reader,

Yesterday, we looked at a Daily Price Chart of JD.com, Inc., noting that the stock’s OBV line is sloping down, validating JD’s recent bearish trend downward.

For today’s Trade of the Day e-letter we will be looking at a monthly chart for Agilent Technologies, Inc. stock symbol: A.

Before breaking down A’s monthly chart let’s first review what products and services the company offers.

Agilent Technologies, Inc. provides application focused solutions to the life sciences, diagnostics, and applied chemical markets worldwide. The Life Sciences and Applied Markets segment offers liquid chromatography systems and components; liquid chromatography mass spectrometry systems; gas chromatography systems and components; gas chromatography mass spectrometry systems; inductively coupled plasma mass spectrometry instruments; atomic absorption instruments, and more.

Now, let’s begin to break down the monthly chart for A stock.

Below is a 10-Month Simple Moving Average chart for Agilent Technologies, Inc.

Sell A Stock

As the chart shows, in January, the A 1-Month Price, crossed below the 10-Month simple moving average (SMA).

This crossover indicated the selling pressure for A stock exceeded the buying pressure. For this kind of crossover to occur, a stock has to be in a strong bearish downtrend.

Now, as you can see, the 1-Month Price is still below the 10-Month SMA. That means the bearish trend is still in play! 

As long as the 1-Month price remains below the 10-Month SMA, the stock is more likely to keep trading at new lows and bearish positions should be initiated.

Our initial price target for A stock is 101.50 per share.

84.1% Profit Potential for A Option

Now, since A’s 1-Month Price is trading below the 10-Month SMA this means the stock’s bearish decline will likely continue. Let’s use the Hughes Optioneering calculator to look at the potential returns for an A put option purchase.

The Put Option Calculator will calculate the profit/loss potential for a put option trade based on the price change of the underlying stock/ETF at option expiration in this example from a flat A 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 A option example, we used the 1% Rule to select the A 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 A in-the-money option strike price, A stock only has to decrease 1% for the option to breakeven and start profiting! Remember, if you purchase an at-the-money or out-of-the-money put 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 A stock is flat at 113.11 at option expiration, it will only result in a 5.6% loss for the A option compared to a 100% loss for an at-the-money or out-of-the-money put 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 put 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 A on 5/9/2022 before commissions.

When you purchase a put option, there is no limit on the profit potential of the put if the underlying stock continues to move down in price.

For this specific put option, the calculator analysis below reveals if A stock decreases 5.0% at option expiration to 107.45 (circled), the put option would make 39.3% before commission.

If A stock decreases 10.0% at option expiration to 101.80 (circled), the put option would make 84.1% before commission and greatly outperform the stock return.

The leverage provided by put options allows you to maximize potential returns on bearish 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.

Get Chuck’s Trades Sent to You!

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!

You can also CLICK HERE to schedule a call now! 

Wishing You the Best in Investing Success,

Chuck Hughes

Editor, Trade of the Day

Have any questions? Email us at dailytrade@chuckstod.com