Dear Reader,

For today’s Trade of the Day we will be exploring the On Balance Volume chart by looking at NRG Energy Inc. (NRG).

NRG Energy Inc. is engaged in the production, sale and delivery of energy and energy products and services to residential, industrial as well as commercial consumers in major competitive power markets in the United States. They generate electricity and provide energy solutions and natural gas to millions of customers through their diverse portfolio of retail brands.

Confirming a Price Uptrend with OBV

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. When a stock closes down, volume is subtracted from the line. A cumulative total of these additions and subtractions form the OBV line.

We can see from the OBV chart below that the On Balance Volume line for NRG 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.

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Confirmed ‘Buy’ Signal for NRG

Since NRG’s OBV line is sloping up, the most likely future price movement for NRG is up, making NRG 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 NRG 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 NRG price to a 12.5% increase.

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 NRG stock increases 5.0% at option expiration to 76.60 (circled), the call option would make 34.1% before commission. 

If NRG stock increases 12.5% at option expiration to 82.07 (circled), the call option would make 97.3% before commission and outperform the stock return nearly 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 NRG on 4/15/2024 before commissions.

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Wishing You the Best in Investing Success,

Chuck Hughes

Editor, Trade of the Day

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*Trading incurs risk and some people lose money trading.