April 14 th , 2022

Dear Reader,

Yesterday, we looked at a Daily Price Chart of Cameco Corp., noting that the stock’s 24/52 Day MACD is trading above the 18-Day EMA signaling a ‘Buy’.

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

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

Dollar Tree, Inc. operates discount variety retail stores. It operates in two segments, Dollar Tree and Family Dollar. The Dollar Tree segment offers merchandise at the fixed price of $ 1.25. It provides consumable merchandise, including candy and food, and health and personal care, as well as everyday consumables, such as household paper and chemicals, and frozen and refrigerated food; variety merchandise comprising toys, durable housewares, gifts, stationery, party goods, greeting cards, softlines, arts and crafts supplies, and more.

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

Below is a 10-Month Simple Moving Average chart for Dollar Tree, Inc.

Buy DLTR Stock

As the chart shows, in October, 2021, the DLTR 1-Month Price, crossed above the 10-Month simple moving average (SMA).

This crossover indicated the buying pressure for DLTR stock exceeded the selling pressure. For this kind of crossover to occur, a stock has to be in a strong bullish uptrend.

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

As long as the 1-Month price remains above the 10-Month SMA, the stock is more likely to keep trading at new highs and should be purchased.

Our initial price target for DLTR is 180.00 per share.

Profit if DLTR is Up, Down or Flat

Now, since DLTR’s Monthly Price is currently trading above the 10-Month SMA and will likely rally from here, let’s use the Hughes Optioneering calculator to look at the potential returns for a DLTR call option spread.

The Call Option Spread Calculator will calculate the profit/loss potential for a call option spread based on the price change of the underlying stock/ETF at option expiration in this example from a 7.5% increase to a 7.5% decrease in DLTR stock at option expiration.

The goal of this example is to demonstrate the ‘built in’ profit potential for option spreads and the ability of spreads to profit if the underlying stock is up, down or flat at option expiration. Out of fairness to our paid option service subscribers we don’t list the option strike prices used in the profit/loss calculation.

The prices and returns represented below were calculated based on the current stock and option pricing for DLTR on 4/13/2022 before commissions.

Built in Profit Potential

For this option spread, the calculator analysis below reveals the cost of the spread is $617 (circled). The maximum risk for an option spread is the cost of the spread.

The analysis reveals that if DLTR stock is flat or up at all at expiration the spread will realize a 62.1% return (circled).

And if DLTR stock decreases 7.5% at option expiration, the option spread would make a 33.5% return (circled).

Due to option pricing characteristics, this option spread has a ‘built in’ 62.1% profit potential when the trade was initiated.

Option spread trades can result in a higher percentage of winning trades compared to a directional option trade if you can profit when the underlying stock/ETF is up, down or flat.

A higher percentage of winning trades can give you the discipline needed to become a successful trader.

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! 

Wishing You the Best in Investing Success,

Chuck Hughes

Editor, Trade of the Day

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

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