Yesterday, we looked at a Daily Price Chart of Avantor, Inc., noting that the stock’s 50-Day EMA is trading below the 100-Day EMA signaling a ‘Sell”.
For today’s Trade of the Day e-letter we will be looking at a monthly chart for Southern Co. stock symbol: SO.
Before breaking down SO’s monthly chart let’s first review what products and services the company offers.
The Southern Company, through its subsidiaries, engages in the generation, transmission, and distribution of electricity. It operates through Gas Distribution Operations, Gas Pipeline Investments, Wholesale Gas Services, and Gas Marketing Services segments. The company also develops, constructs, acquires, owns, and manages power generation assets, including renewable energy projects and sells electricity in the wholesale market
Now, let’s begin to break down the monthly chart for SO stock.
Below is a 10-Month Simple Moving Average chart for Southern Co.
Buy SO Stock
As the chart shows, in December 2021, the SO 1-Month Price, crossed above the 10-Month simple moving average (SMA).
This crossover indicated the buying pressure for SO 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 SO stock is 84.50 per share.
81.5% Profit Potential for SO Option
Now, since SO’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 SO 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 SO 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 SO option example, we used the 1% Rule to select the SO 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 SO in-the-money option strike price, SO 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 SO stock is flat at 79.72 at option expiration, it will only result in a 0.3% loss for the SO 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 SO on 8/18/2022 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 SO stock increases 5.0% at option expiration to 83.71 (circled), the call option would make 40.6% before commission.
If SO stock increases 10.0% at option expiration to 87.69 (circled), the call option would make 81.5% before commission and outperform the stock return more than 8 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.
Average Portfolio Return of 105.1%
Below is a screenshot of the current open trade profit opportunities from Chuck’s Weekly Option Alert Trading Service. There are currently $267,011.65 in open trade profit opportunities with an average portfolio return of 105.1% demonstrating the ability of the Optioneering Strategy to deliver substantial returns with no losing portfolios**.
**Open trade profit results represent the open trade profit performance for the portfolios displayed on August 17th 2022. Open trade profits may have increased or decreased when trades were closed out. Trading incurs risk and some people lose money trading. Past performance does not necessarily predict future results. Member profits and losses are not tracked. Profit potential is taken from results of signaled trades, not actual member results. Not all members make the trades.
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Wishing You the Best in Investing Success,
Editor, Trade of the Day
Have any questions? Email us at email@example.com
*Trading incurs risk and some people lose money trading.