April 22nd, 2022
Yesterday, we looked at a Daily Price Chart of Sempra Energy, noting that the SRE’s OBV line is trending up, validating the stock’s bullish run.
For today’s Trade of the Day e-letter we will be looking at a monthly chart for Cincinnati Financial Corp. stock symbol: CINF.
Before breaking down CINF’s monthly chart let’s first review what products and services the company offers.
Cincinnati Financial Corporation, together with its subsidiaries, provides property casualty insurance products in the United States. The company operates through five segments: Commercial Lines Insurance, Personal Lines Insurance, Excess and Surplus Lines Insurance, Life Insurance, and Investments. The Commercial Lines Insurance segment offers coverage for commercial casualty, commercial property, commercial auto, and workers’ compensation.
Now, let’s begin to break down the monthly chart for CINF stock.
Below is a 10-Month Simple Moving Average chart for Cincinnati Financial Corp.
Buy CINF Stock
As the chart shows, in January, the CINF 1-Month Price, crossed above the 10-Month simple moving average (SMA).
This crossover indicated the buying pressure for CINF 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 CINF is 152.00 per share.
80.4% Profit Potential for CINF Option
Now, since CINF’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 CINF 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 CINF 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 CINF option example, we used the 1% Rule to select the CINF 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 CINF in-the-money option strike price, CINF 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 CINF stock is flat at 140.28 at option expiration, it will only result in a 6.0% loss for the CINF 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 CINF on 4/21/2022 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 CINF stock increases 5.0% at option expiration to 147.29 (circled), the call option would make 37.2% before commission.
If CINF stock increases 10.0% at option expiration to 154.31 (circled), the call option would make 80.4% 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 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.
Chuck’s Trades Are Within Your Reach
Do you want to start receiving hand-picked trades from 10-Time Trading Champion, Chuck Hughes?
As a Trade of the Day subscriber, Chuck is offering you a special discount on his Weekly Option Alert Trading Service.
Just call Brad at 1-866-661-5664 or 1-310-647-5664 to join and use the code “Optioneering VIP” to receive special pricing!
You can also 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
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