| Profit if Restoration Hardware Stock is Up, Flat, or Down |
Dear Reader,
Yesterday, we looked at a Daily Price Chart of Big Lots, Inc. noting the stock's 12/26 Day MACD was trading above the 9-Day EMA signaling bullish momentum.
For today's Trade of the Day we will be looking at a Daily Price chart for Restoration Hardware, Inc. stock symbol: RH.
Before breaking down RH's daily price chart let's first review which products and services are offered by the company.
Restoration Hardware, Inc. together with its subsidiaries, operates as a retailer in the home furnishings. It offers products in various categories, including furniture, lighting, textiles, bathware, décor, outdoor and garden, tableware, and child and teen furnishings. The company provides its products through its retail galleries; and Source Books, a series of catalogs, as well as online through rh.com, restorationhardware.com, rhbabyandchild.com, rhteen.com, and rhmodern.com, as well as waterworks.com.
Now, let's begin to break down the Daily Price chart for RH. Below is a Daily Price Chart with the price line displayed by an OHLC bar.
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The Daily Price chart above shows that RH stock began reaching a series of higher highs and higher lows since mid-March.
This pattern of bullish trading suggests the stock will march on to a further advance.
You see, after a stock makes a series of two or more higher highs and higher lows, the stock typically continues its price up trend and is a good candidate for a call option debit spread.
Our price target for RH stock is 267.00 per share.
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| | | | Profit if RH is Up, Down or Flat
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Now, since RH stock has been making a series of higher highs and higher lows and the stock will likely rally from here, let's use the Hughes Optioneering calculator to look at the potential returns for a RH 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 15.0% increase to a 15.0% decrease in RH 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 RH on 6/4/2020 before commissions.
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51.5% Built in Profit Potential
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For this option spread, the calculator analysis below reveals the cost of the spread is $330 (circled). The maximum risk for an option spread is the cost of the spread.
The analysis reveals that if RH is flat or up at all at expiration the spread will realize a 51.5% return (circled).
And if RH decreases 15.0% at option expiration, the option spread would make a 51.5% return (circled).
Due to option pricing characteristics, this option spread has a 'built in' 51.5% 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.
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Trade High Priced Stocks for $350 With Less Risk
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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 Apple for $350. If you were to purchase 100 shares of Apple at current prices it would cost about $30,000. With the stock purchase you are risking $30,000 but with an Apple option spread that costs $350 your maximum risk is $350 so your dollar risk is lower with option spreads compared to stock purchases.
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Chuck is offering special pricing for his Weekly Option Alert Trading Service for Trade of the Day subscribers.
You can start receiving hand-picked trades from Chuck today!
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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