Yesterday, we looked at a Monthly Price Chart for Eaton Corp., noting that the stock’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 Mastercard Inc., stock symbol: MA.
Before breaking down MA’s daily price chart let’s first review which products and services are offered by the company.
Mastercard Incorporated, a technology company, provides transaction processing and other payment-related products and services in the United States and internationally. It facilitates the processing of payment transactions, including authorization, clearing, and settlement, as well as delivers other payment-related products and services.
Now, let’s begin to break down the Daily Price chart for MA. Below is a Daily Price Chart with the price line displayed by an OHLC bar.
Buy MA Stock
The Daily Price chart above shows that MA stock began reaching a series of higher highs and higher lows since mid-May.
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 MA stock is 417.50 per share.
165.4% Profit Potential for MA Option
Now, since MA 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 MA 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 MA 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 MA option example, we used the 1% Rule to select the MA 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 MA in-the-money option strike price, MA 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 MA stock is flat at 409.98 at option expiration, it will only result in a 13.1% loss for the MA 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 MA on 8/29/2023 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 MA stock increases 5.0% at option expiration to 430.48 (circled), the call option would make 76.1% before commission.
If MA stock increases 10.0% at option expiration to 450.98 (circled), the call option would make 165.4% before commission and outperform the stock return more than 16 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.