PowerTrend ‘Buy’ Detected for MAIN

Dear Reader,

On Friday, we looked at a Daily Price Chart of Colgate-Palmolive Co., noting that CL’s 24/52 Day MACD is trading above the 18-Day EMA signaling a ‘Buy’.

For today’s Trade of the Day e-letter we will be looking at a monthly chart for Main Street Capital Corp. stock symbol: MAIN.

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

Main Street Capital Corporation is a specialty investment company providing customized financing solutions to lower middle market companies which operate in diverse industry sectors. Main Street seeks to partner with entrepreneurs, business owners and management teams and generally provides `one stop` financing alternatives to its portfolio companies.

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

Below is a 10-Month Simple Moving Average chart for Main Street Capital Corp.

Buy MAIN Stock

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

This crossover indicated the buying pressure for MAIN 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 MAIN is 51.50 per share.

80.0% Profit Potential for MAIN Option

Now, since MAIN’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 a MAIN 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 MAIN 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 MAIN option example, we used the 1% Rule to select the MAIN 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.

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Trade with Higher Accuracy

When you use the 1% Rule to select a MAIN in-the-money option strike price, MAIN 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 MAIN stock is flat at 50.37 at option expiration, it will only result in a 2.6% loss for the MAIN 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 MAIN on 5/3/2024 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 MAIN stock increases 5.0% at option expiration to 52.89 (circled), the call option would make 38.7% before commission.

If MAIN stock increases 10.0% at option expiration to 55.41 (circled), the call option would make 80.0% before commission and outperform the stock return 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.

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Wishing You the Best in Investing Success,