Yesterday, we looked at a Monthly Price Chart for Decker’s Outdoor Corp., noting that the stock’s 1-Month Price is trading above the 10-Month SMA.
For today’s Trade of the Day we will be looking at a Daily Price chart for Installed Building Products Inc. stock symbol: IBP.
Before breaking down IBP’s daily price chart let’s first review which products and services are offered by the company.
Installed Building Products, Inc., together with its subsidiaries, engages in the installation of insulation, waterproofing, fire-stopping, fireproofing, garage doors, rain gutters, window blinds, shower doors, closet shelving and mirrors, and other products in the continental United States.
Now, let’s begin to break down the Daily Price chart for IBP. Below is a Daily Price Chart with the price line displayed by an OHLC bar.
Buy IBP Stock
The Daily Price chart above shows that IBP 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 IBP stock is 165.00 per share.
116.0% Profit Potential for IBP Option
Now, since IBP 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 an IBP 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 IBP 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 IBP option example, we used the 1% Rule to select the IBP 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 IBP in-the-money option strike price, IBP 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 IBP stock is flat at 156.86 at option expiration, it will only result in a 7.0% loss for the IBP 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 IBP on 8/7/2023 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 IBP stock increases 5.0% at option expiration to 164.70 (circled), the call option would make 54.5% before commission.
If IBP stock increases 10.0% at option expiration to 172.55 (circled), the call option would make 116.0% before commission and outperform the stock return more than 11 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 firstname.lastname@example.org
*Trading incurs risk and some people lose money trading.