Yesterday, we looked at a Daily Price Chart of Builders FirstSource, Inc. noting the stock’s OBV line is sloping up, validating the recent bullish run.
For today’s Trade of the Day we will be looking at a Daily Price chart for DR Horton Inc. stock symbol: DHI.
Before breaking down DHI’s daily price chart let’s first review which products and services are offered by the company.
D.R. Horton, Inc. operates as a homebuilding company in East, North, Southeast, South Central, Southwest, and Northwest regions in the United States. It engages in the acquisition and development of land; and construction and sale of residential homes in 106 markets across 33 states under the names of D.R. Horton, America’s Builder, Express Homes, Emerald Homes, and Freedom Homes.
Now, let’s begin to break down the Daily Price chart for DHI. Below is a Daily Price Chart with the price line displayed by an OHLC bar.
Buy DHI Stock
The Daily Price chart above shows that DHI stock has been hitting new 52-Week Highs regularly since mid-December.
Simply put, a stock does not just continually hit a series of new 52-Week Highs unless it is in a very strong bullish trend.
The Hughes Optioneering team looks for stocks that are making a series of 52-Week Highs as this is a good indicator that the stock is in a powerful uptrend.
You see, after a stock makes a series of two or more 52-Week Highs, the stock typically continues its price uptrend and should be purchased.
Our initial price target for DHI stock is 108.00 per share.
113.0% Profit Potential for DHI Option
Now, since DHI stock is currently making a series of 52-Week Highs this means the stock’s bullish rally will likely continue. Let’s use the Hughes Optioneering calculator to look at the potential returns for a DHI 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 DHI 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 DHI option example, we used the 1% Rule to select the DHI 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 a DHI in-the-money option strike price, DHI 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 DHI stock is flat at 99.90 at option expiration, it will only result in a 6.0% loss for the DHI 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 DHI on 2/1/2023 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 DHI stock increases 5.0% at option expiration to 104.90 (circled), the call option would make 53.5% before commission.
If DHI stock increases 10.0% at option expiration to 109.89 (circled), the call option would make 113.0% before commission and outperform the stock return more than 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.