Dear Reader,

On Friday, we looked at a Daily Price Chart of Arch Capital Group Ltd., noting that the stock had retraced below the upper Keltner Channel in the ’Buy Zone’.

For today’s Trade of the Day e-letter we will be looking at a monthly chart for W.R. Berkley Corporation stock symbol: WRB.

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

W. R. Berkley Corporation, an insurance holding company, operates as a commercial lines writer in the United States and internationally. It operates in two segments, Insurance and Reinsurance & Monoline Excess.

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

Below is a 10-Month Simple Moving Average chart for W.R. Berkley Corporation.

Buy WRB Stock

As the chart shows, in November 2020, the WRB 1-Month Price, crossed above the 10-Month simple moving average (SMA).

This crossover indicated the buying pressure for WRB 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 WRB is 100.00 per share.

79.3% Profit Potential for WRB Option

Now, since WRB’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 WRB 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 WRB 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 WRB option example, we used the 1% Rule to select the WRB 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 an WRB in-the-money option strike price, WRB 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 WRB stock is flat at 89.76 at option expiration, it will only result in a 6.6% loss for the WRB 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 WRB on 2/4/2022 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 WRB stock increases 5.0% at option expiration to 94.25 (circled), the call option would make 36.3% before commission.

If WRB stock increases 10.0% at option expiration to 98.74 (circled), the call option would make 79.3% before commission and outperform the stock return nearly 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.

Get Chuck’s Trades Sent to You!

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!

Wishing You the Best in Investing Success,

Chuck Huges Signature

Chuck Hughes

Editor, Trade of the Day

Have any questions? Email us at dailytrade@chuckstod.com