Yesterday, we looked at a Daily Price Chart of Evolent Health, Inc. noting the stock’s OBV line is sloping up, validating the stock’s recent bullish run.
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. develops products that enable people to connect and share with friends and family through mobile devices, personal computers, virtual reality headsets, wearables, and in-home devices worldwide. It operates in two segments, Family of Apps and Reality Labs. The Family of Apps segment’s products include Facebook, which enables people to share, discover, and connect with interests; Instagram, a community for sharing photos, videos, and private messages, as well as feed, stories, reels, video, live, and shops, and others.
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.
Sell 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 below the lower Keltner Channel, this signals that the stock is temporarily oversold and subject to a price rebound.
Even stocks that are in the strongest bearish trends do not decline in a straight line. There are always price rebounds along the way. When a stock becomes oversold, it’s price will typically rebound soon after as the inevitable ‘buying the dip’ occurs.
The META daily price chart shows that the stock is in a strong price downtrend and has become oversold several times. You can see this as META has traded below the Lower Keltner Channel on multiple occasions recently.
But, in every scenario when META became oversold, the stock soon experienced a rebound.
Finding bearish trade opportunities when a stock experiences a price rebound is why the Hughes Optioneering Team uses the Keltner Channels. They help us find a lower-risk entry point.
The Keltner Channel “Sell Zone” occurs when a stock is trading above the Lower Keltner Channel. Once the daily price is trading above the lower channel, it provides a lower-risk buying opportunity for bearish trades as the stock is likely to continue its decline.
Our initial price target for META stock is 160.00 per share.
Profit if META is Down, Up, or Flat
Now, since META is trading in the Keltner Channel ‘Sell Zone’, this offers us a prime bearish trade entry opportunity. Let’s use the Hughes Optioneering calculator to look at the potential returns for a META put option spread.
The Put Option Spread Calculator will calculate the profit/loss potential for a put option spread based on the price change of the underlying stock/ETF at option expiration in this example from a 10.0% decrease to a 10.0% increase in META 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 down, up, 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 8/4/2022 before commissions.
Built in Profit Potential
For this option spread, the calculator analysis below reveals the cost of the spread is $645 (circled). The maximum risk for an option spread is the cost of the spread.
The analysis reveals that if META stock is flat or down at all at expiration the spread will realize a 55.0% return (circled).
And if META stock increases 10.0% at option expiration, the option spread would make a 17.6% return (circled).
Due to option pricing characteristics, this option spread has a ‘built in’ 55.0% profit potential when the trade was initiated*.
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 winning trades 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.
Trade High Priced Stocks for $350 With Less Risk
One of the big advantages to trading option spreads is that spreads allow you to trade high price stocks like Amazon, Google, or Netflix for as little as $350. With an option spread you can control 100 shares of Google for $350. If you were to purchase 100 shares of Google at current prices it would cost about $11,800. With the stock purchase you are risking $11,800 but with a Google option spread that costs $350 your maximum risk is $350 so your dollar risk is lower with option spreads compared to stock purchases.
Get Trade Insights Directly From Chuck
You can start getting market insights directly from 10-Time Trading Champion Chuck Hughes.
See what he’s trading and when with his exclusive Inner Circle Trading Service where he will send you his hand-picked stock and option trades.
Just call Brad at 1-866-661-5664 or 1-310-647-5664 to join or CLICK HERE to schedule a call!
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.