| Deere & Co. Shares Bounding Higher |
Dear Reader,
Yesterday, we looked at a Monthly Price Chart of DR Horton Inc. noting the stock's 1-Month Price is trading above the 10-Month SMA, showing a 'Buy' signal.
For today's Trade of the Day we will be looking at a Keltner Channel chart for Deere & Co. stock symbol: DE.
Before breaking down DE's daily Keltner Channel chart let's first review which products and services are offered by the company.
Deere & Company, together with its subsidiaries, manufactures and distributes various equipment worldwide. The company operates through three segments: Agriculture and Turf, Construction and Forestry, and Financial Services.
Now, let's begin to break down the Keltner Channel chart for DE. Below is a Daily Price Chart and the three Keltner Channels for DE stock. |
The Hughes Optioneering Team uses the Keltner Channels as an indicator to determine whether a stock is overbought or oversold. If a stock's daily stock price is trading above the upper Keltner Channel, this signals that the stock is temporarily overbought and subject to a retracement.
Even stocks that are in the strongest bull trends do not advance in a straight line. There are always price retracements along the way. When a stock becomes overbought, it's price will typically decline soon after as the inevitable profit taking occurs.
The DE daily price chart shows that the stock is in a strong price uptrend and has become overbought several times. You can see this as DE has traded above the Upper Keltner Channel on multiple occasions recently.
But, in every scenario when DE became overbought, the stock quickly soon after experienced a pullback.
Finding opportunities when a stock experiences a pullback is why the Hughes Optioneering Team uses the Keltner Channels. They help us find a lower-risk entry point.
The Keltner Channel "Buy Zone" occurs when a stock is trading below the upper Keltner Channel. Once the daily price is trading below the upper channel, it provides a lower-risk buying opportunity as the stock is likely to rally.
Our initial price target for DE stock is 256.50 per share. |
Profit if DE is Up, Down or Flat
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Now, since DE stock has retraced below the Upper Keltner Channel offering a lower risk entry point, let's use the Hughes Optioneering calculator to look at the potential returns for a DE 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 7.5% increase to a 7.5% decrease in DE 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 DE on 10/5/2020 before commissions. |
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| | Built in Profit Potential
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For this option spread, the calculator analysis below reveals the cost of the spread is $657 (circled). The maximum risk for an option spread is the cost of the spread.
The analysis reveals that if DE stock is flat or up at all at expiration the spread will realize a 52.2% return (circled).
And if DE decreases 7.5% at option expiration, the option spread would make a 51.3% return (circled).
Due to option pricing characteristics, this option spread has a 'built in' 52.2% profit potential when the trade was initiated.
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 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.
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Start Trading Like Chuck Today!
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| Today Chuck is offering you a very special deal.
As a Trade of the Day subscriber, if you sign up and become a member of The Chuck Hughes Inner Circle Trading Service today, he will give you special discount.
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!
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Wishing You the Best in Investing Success,
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| | Chuck Hughes Editor, Trade of The Day
Have any questions? Email us at dailytrade@chuckstod.com |
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