Yesterday, we looked at a Monthly Price Chart for Welltower Inc., noting that the stock’s 1-Month Price is trading above the 10-Month SMA signaling a ‘Buy’.
For today’s Trade of the Day e-letter we will be looking at a daily price chart for Weatherford International Plc stock symbol: WFRD.
Before breaking down WFRD’s daily chart let’s first review what products and services the company offers.
Weatherford International plc, an energy services company, provides equipment and services for the drilling, evaluation, completion, production, and intervention of oil, geothermal, and natural gas wells worldwide. The company operates through three segments: Drilling and Evaluation; Well Construction and Completions; and Production and Intervention.
Now, let’s begin to break down the Daily Price chart for WFRD stock.
Below is a Daily Price chart with the 50-Day EMA and 100-Day EMA for WFRD.
50-Day EMA and 100-Day EMA ‘Buy’ 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.
Buy WFRD Stock
As the chart shows, on September 16th, 2022, the WFRD 50-Day EMA, crossed above the 100-Day EMA.
This crossover indicated the buying pressure for WFRD stock exceeded the selling pressure. For this kind of crossover to occur, a stock has to be in a strong bullish trend.
Now, as you can see, the 50-Day EMA is still above the 100-Day EMA meaning the ‘buy’ signal is still in play.
As long as the 50-Day EMA remains above the 100-Day EMA, the stock is more likely to keep trading at new highs and should be purchased.
Our initial price target for WFRD stock is 100.00 per share.
Profit if WFRD is Up, Down or Flat
Now, since WFRD’s 50-Day EMA is currently trading above the 100-Day EMA and will likely rally from here, let’s use the Hughes Optioneering calculator to look at the potential returns for a WFRD call option spread.
The Call Option Spread Calculator will calculate the profit/loss potential for a call option spread based on the price change of the underlying stock/ETF at option expiration in this example from a 10.0% increase to a 10.0% decrease in WFRD 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 up, down 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 WFRD on 9/19/2023 before commissions.
Built in Profit Potential
For this option spread, the calculator analysis below reveals the cost of the spread is $305 (circled). The maximum risk for an option spread is the cost of the spread.
The analysis reveals that if WFRD stock is flat or up at all at expiration the spread will realize a 63.9% return (circled).
And if WFRD stock decreases 10.0% at option expiration, the option spread would make a 63.9% return (circled).
Due to option pricing characteristics, this option spread has a ‘built in’ 63.9% 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.
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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.