Yesterday, we looked at a Monthly Price Chart for Alibaba Group Holding Ltd., noting that the stock’s 1-Month Price is trading below the 10-Month SMA.
For today’s Trade of the Day we will be looking at a Daily Price chart for Walgreens Boots Alliance, Inc. stock symbol: WBA.
Before breaking down WBA’s daily price chart let’s first review which products and services are offered by the company.
Walgreens Boots Alliance, Inc. operates as a pharmacy-led health and beauty retail company. It operates through two segments, the United States and International. The United States segment sells prescription drugs and an assortment of retail products, including health, wellness, beauty, personal care, consumable, and general merchandise products through its retail drugstores.
Now, let’s begin to break down the Daily Price chart for WBA. Below is a Daily Price Chart with the price line displayed by an OHLC bar.
Sell WBA Stock
The Daily Price chart above shows that WBA stock began reaching a series of lower highs and lower lows since mid-August.
This pattern of bearish trading suggests the stock will march on to a further decline.
You see, after a stock makes a series of two or more lower highs and lower lows, the stock typically continues its price downtrend and bearish positions should be purchased.
Our initial price target for WBA stock is 32.10 per share.
82.5% Profit Potential for WBA Option
Now, since WBA stock is currently making a series of lower highs and lower lows this means the stock’s bearish decline will likely continue. Let’s use the Hughes Optioneering calculator to look at the potential returns for a WBA put option purchase.
The Put Option Calculator will calculate the profit/loss potential for a put option trade based on the price change of the underlying stock/ETF at option expiration in this example from a flat WBA price to a 12.5% decrease.
The Optioneering Team uses the 1% Rule to select an option strike price with a higher percentage of winning trades. In the following WBA option example, we used the 1% Rule to select the WBA 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 WBA in-the-money option strike price, WBA stock only has to decrease 1% for the option to breakeven and start profiting! Remember, if you purchase an at-the-money or out-of-the-money put 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 WBA stock is flat at 34.15 at option expiration, it will only result in a 3.3% loss for the WBA option compared to a 100% loss for an at-the-money or out-of-the-money put 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 put 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 WBA on 9/19/2022 before commissions.
When you purchase a put option, there is virtually no limit on the profit potential of the put if the underlying stock continues to decline in price.
For this specific put option, the calculator analysis below reveals if WBA stock decreases 5.0% at option expiration to 32.44 (circled), the put option would make 39.6% before commission.
If WBA stock decreases 10.0% at option expiration to 30.74 (circled), the put option would make 82.5% before commission and outperform the stock return more than 8 to 1*.
The leverage provided by put options allows you to maximize potential returns on bearish 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 email@example.com
*Trading incurs risk and some people lose money trading.