LDOS: Trade Top Defense Sector Stock

Dear Reader,

On Friday, we looked at a Daily Price Chart of the SPDR S&P Oil & Gas Exploration & Production ETF, noting that XOP shares were trading in the ‘Buy Zone’.

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

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

Leidos Holdings, Inc. is a global science and technology leader that serves the defense, intelligence, civil and health markets. Its core capabilities include providing solutions in the fields of cybersecurity; data analytics; enterprise IT modernization; operations and logistics; sensors, collection and phenomenology; software development; and systems engineering.

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

Below is a 10-Month Simple Moving Average chart for Leidos Holdings, Inc.

Buy LDOS Stock

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

This crossover indicated the buying pressure for LDOS 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 LDOS is 135.55 per share.

Profit if LDOS is Up, Down or Flat

Now, since LDOS’s 1-Month Price is 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 LDOS 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 LDOS 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 LDOS on 4/29/2024 before commissions.

Built in Profit Potential

For this option spread, the calculator analysis below reveals the cost of the spread is $310 (circled). The maximum risk for an option spread is the cost of the spread.

The analysis reveals that if LDOS stock is flat or up at all at expiration the spread will realize a 61.3% return (circled).

And if LDOS stock decreases 7.5% at option expiration, the option spread would make a 61.3% return (circled).

Due to option pricing characteristics, this option spread has a ‘built in’ 61.3% profit potential when the trade was identified*.

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 profit opportunities just like this one.

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Wishing You the Best in Investing Success,