On Friday, we looked at a Daily Price Chart of Salesforce.com, Inc., noting that the stock had retraced below the upper Keltner Channel into the ‘Buy Zone’.
For today’s Trade of the Day e-letter we will be looking at a monthly chart for Ingersoll Rand Inc. stock symbol: IR.
Before breaking down IR’s monthly chart let’s first review what products and services the company offers.
Ingersoll Rand Inc. provides various mission-critical air, fluid, energy, specialty vehicle, and medical technologies in the United States, Europe, the Middle East, India, Africa, and the Asia Pacific. It operates through two segments, Industrial Technologies and Services, and Precision and Science Technologies.
Now, let’s begin to break down the monthly chart for IR stock.
Below is a 10-Month Simple Moving Average chart for Ingersoll Rand Inc.
Buy IR Stock
As the chart shows, in October 2023, the IR 1-Month Price, crossed above the 10-Month simple moving average (SMA).
This crossover indicated the buying pressure for IR 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 IR is 64.00 per share.
100.0% Profit Potential for IR Option
Now, since IR’s 1-Month Price is trading above the 10-Month SMA 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 IR 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 IR 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 IR option example, we used the 1% Rule to select the IR 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 IR in-the-money option strike price, IR 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 IR stock is flat at 60.82 at option expiration, it will only result in a 2.2% loss for the IR 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 IR on 6/5/2023 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 IR stock increases 5.0% at option expiration to 63.86 (circled), the call option would make 48.9% before commission.
If IR stock increases 10.0% at option expiration to 66.90 (circled), the call option would make 100.0% before commission and outperform the stock return 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.
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.