Yesterday, we looked at a Daily Price Chart for Arch Capital Group Ltd., noting that the stock has been recently making a series of 52-Week Highs.
For today’s Trade of the Day e-letter we will be looking at a daily price chart for Trupanion, Inc. stock symbol: TRUP.
Before breaking down TRUP’s daily chart let’s first review what products and services the company offers.
Trupanion, Inc., together with its subsidiaries, provides medical insurance for cats and dogs on a monthly subscription basis in the United States, Canada, Puerto Rico, and Australia. The company operates in two segments, Subscription Business and Other Business. It serves pet owners and veterinarians.
Now, let’s begin to break down the Daily Price chart for TRUP stock.
Below is a Daily Price chart with the 50-Day EMA and 100-Day EMA for TRUP.
50-Day EMA and 100-Day EMA ‘Sell’ Signal
The 50-Day Exponential Moving Average (EMA) and 100-Day EMA are moving average indicator lines that can provide buy and sell signals when used together. When the shorter-term 50-Day EMA crosses above or below the longer-term 100-Day EMA, this provides either a buy or sell signal depending on which direction the stock price is moving.
- 50-Day EMA line Above 100-Day EMA = Price Uptrend = Buy signal
- 50 Day EMA line Below 100-Day EMA = Price Downtrend = Sell signal
When the 50-Day EMA (blue line) crosses above the 100-Day EMA (red line) this indicates that the stock’s buying pressure has begun to outweigh the selling pressure signaling a ‘buy’ signal. When the 50-Day EMA crosses below the 100-Day EMA this indicates that the selling pressure has begun to outweigh the buying pressure signaling a ‘sell’ signal.
Sell TRUP Stock
As the chart shows, on February 2nd, the TRUP 50-Day EMA, crossed below the 100-Day EMA.
This crossover indicated the selling pressure for TRUP stock exceeded the buying pressure. For this kind of crossover to occur, a stock has to be in a strong bearish trend.
Now, as you can see, the 50-Day EMA is still below the 100-Day EMA meaning the ‘sell’ signal is still in play.
As long as the 50-Day EMA remains below the 100-Day EMA, the stock is more likely to keep trading at new lows and bearish positions should be initiated.
Our initial price target for TRUP stock is 43.50 per share.
Profit if TRUP is Down, Up, or Flat
Now, since TRUP’s 50-Day EMA is trading below the 100-Day EMA, the stock will likely continue its trend downward. Let’s use the Hughes Optioneering calculator to look at the potential returns for a TRUP 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 TRUP 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 TRUP on 12/28/2022 before commissions.
Built in Profit Potential
For this option spread, the calculator analysis below reveals the cost of the spread is $320 (circled). The maximum risk for an option spread is the cost of the spread.
The analysis reveals that if TRUP stock is flat or down at all at expiration the spread will realize a 56.3% return (circled).
And if TRUP stock increases 10.0% at option expiration, the option spread would make a 21.3% return (circled).
Due to option pricing characteristics, this option spread has a ‘built in’ 56.3% profit potential when the trade was identified*.
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 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.
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, Netflix or Apple for as little as $350. With an option spread you can control 100 shares of Netflix for $350. If you were to purchase 100 shares of Netflix at current prices it would cost about $27,000. With the stock purchase you are risking $27,000 but with a Netflix 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.