| RGR Flashing a PowerTrend Buy Signal |
Dear Reader,
Yesterday, we looked at a Keltner Channel Chart of Salesforce.com, Inc., noting that the stock price had dipped below the Upper Keltner Channel.
For today's Trade of the Day e-letter we will be looking at a monthly chart for Sturm Ruger & Co., Inc. stock symbol: RGR.
Before breaking down RGR's monthly chart let's first review what products and services the company offers.
Sturm, Ruger & Company, Inc., together with its subsidiaries, designs, manufactures, and sells firearms under the Ruger name and trademark in the United States. It operates in two segments, Firearms and Castings. The company provides single-shot, autoloading, bolt-action, and sporting rifles; rimfire and centerfire autoloading pistols; single-action and double-action revolvers; and firearms accessories and replacement parts.
Now, let's begin to break down the monthly chart for RGR stock.
Below is a 10-Month Simple Moving Average chart for Sturm Ruger & Co., Inc.
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As the chart shows, in January, the RGR 1-Month Price, crossed above the 10-Month simple moving average (SMA).
This crossover indicated the buying pressure for RGR 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 in the coming days and weeks.
We'll be keeping our eye on this stock as it continues to trend upward, so we'll know the moment the market conditions shift and the stock begins to come back down.
Our initial price target for RGR is 83.70 per share.
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| | | | 80.0% Profit Potential for RGR Option
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Now, since RGR'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 an RGR 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 RGR 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 RGR option example, we used the 1% Rule to select the RGR 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.
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Trade with Higher Accuracy
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When you use the 1% Rule to select an RGR in-the-money option strike price, RGR 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 RGR stock is flat at 76.09 at option expiration, it will only result in a 4.6% loss for the RGR 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 will 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 RGR on 7/1/2020 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 RGR stock increases 5.0% at option expiration to 79.89 (circled), the call option would make 37.7% before commission.
If RGR stock increases 10.0% at option expiration to our initial price target of 83.70 (circled), the call option would make 80.0% before commission and outperform the stock return 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.
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| | You can start receiving hand-picked trades from Chuck today!
Chuck is offering special pricing for his Inner Circle Trading Service for Trade of the Day subscribers.
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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