Yesterday, we looked at a Daily Price Chart of Applied Materials noting the stock’s series of 52-week highs signaling a bullish stock.
For today’s Trade of the Day we will be looking at a Keltner Channel chart for Meta Platforms, Inc. stock symbol: META .
Before breaking down META’s daily Keltner Channel chart let’s first review which products and services are offered by the company.
Meta Platforms, Inc. is a communications services company creating social media and another communication products used in phones, computers, and headsets. Apps under Meta Platforms include Facebook, Messenger, Instagram, and WhatsApp. Augmented and Virtual Reality also continue to an area of development with software and hardware.
Now, let’s begin to break down the Keltner Channel chart for META. Below is a Daily Price Chart and the three Keltner Channels for META stock.
Buy META Stock
The Hughes Optioneering Team uses the Keltner Channels as an indicator to determine whether a stock is overbought or oversold. If a stock’s daily stock price is trading above the upper Keltner Channel, this signals that the stock is temporarily overbought and subject to a retracement.
Even stocks that are in the strongest bull trends do not advance in a straight line. There are always price retracements along the way. When a stock becomes overbought, it’s price will typically decline soon after as the inevitable profit taking occurs.
The META daily price chart shows that the stock is in a strong price uptrend and has become overbought several times. You can see this as META has traded above the Upper Keltner Channel on multiple occasions recently.
But, in every scenario when META became overbought, the stock soon experienced a pullback.
Finding opportunities when a stock experiences a pullback is why the Hughes Optioneering Team uses the Keltner Channels. They help us find a lower-risk entry point.
The Keltner Channel “Buy Zone” occurs when a stock is trading below the upper Keltner Channel. Once the daily price is trading below the upper channel, it provides a lower-risk buying opportunity as the stock is likely to rally.
Our initial price target for META stock is 310 per share.
Profit if META Is Up, Flat, or Down 7.5%
META stock is currently trading below the Upper Keltner Channel, setting up a prime buying opportunity during this bullish run. Let’s use the Hughes Optioneering calculator to look at the potential returns for a META 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 the META security 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 META on 6/27/2023 before commissions.
Built in Profit Potential
For this option spread, the calculator analysis below reveals the cost of the spread is $683 (circled). The maximum risk for an option spread is the cost of the spread.
The analysis reveals that if the META stock decreases -5%, remains flat, or increases at all at expiration the spread will realize a 46.4% return.
And if the META stock decreases -7.5% at option expiration, the option spread would still make a 46.4% return (circled).
Due to option pricing characteristics, this option spread has a ‘built in’ 46.4% 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.
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.
Chuck’s $3,000 Trading Scholarship
I don’t want you to miss a single opportunity to potentially reach your goals. That’s why I’d like to offer you a scholarship of the full $3,000 Enrollment Fee of my exclusive Inner Circle Trading Service**.
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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.
**Inner Circle Trading Service program provides training package and specific trade signals for one year. The first 10 people to sign up each day this offer is valid, will get a waiver of the standard fee, which is the price charged to anyone signing up after the first 10 people per day.
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