| Salesforce Stock in "Buy Zone" |
Dear Reader,
Yesterday, we looked at a daily price chart of MarketAxess Holdings Inc. noting the stock's 50-Day EMA is trading above the 100-Day EMA signaling a bullish trend.
For today's Trade of the Day we will be looking at a Keltner Channel chart for Salesforce.com, Inc. stock symbol: CRM.
Before breaking down CRM's daily Keltner Channel chart let's first review which products and services are offered by the company.
Salesforce.com is the market and technology leader in on-demand business services. The company's Salesforce suite of on-demand CRM applications allows customers to manage and share all of their sales, support, marketing and partner information on-demand. The Salesforce Platform, the world's first on- demand platform, enables customers, developers and partners to build powerful new on-demand applications that extend beyond CRM to deliver the benefits of multi-tenancy and The Business Web across the enterprise.
Now, let's begin to break down the Keltner Channel chart for CRM. Below is a Daily Price Chart and the three Keltner Channels for Salesforce.com, Inc. stock.
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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 CRM daily price chart shows that the stock is in a strong price uptrend and has become overbought many times. You can see this as CRM has traded above the Upper Keltner Channel on multiple occasions recently.
But, in every scenario when CRM 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 CRM 201.50 is per share.
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| | | | Profit if CRM is Up, Down or Flat
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Now, since CRM stock price has dipped below the Upper Keltner Channel offering a better entry point during this bullish run, let's use the Hughes Optioneering calculator to look at the potential returns for a CRM 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 CRM 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 CRM on 6/30/2020 before commissions.
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56.3% Built in Profit Potential
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For this option spread, the calculator analysis below reveals the cost of the spread is $320 (circled). The maximum risk for an option spread is the cost of the spread.
The analysis reveals that if CRM is flat or up at all at expiration the spread will realize a 56.3% return (circled).
And if CRM decreases 7.5% at option expiration, the option spread would make a 56.3% return (circled).
Due to option pricing characteristics, this option spread has a 'built in' 56.3% 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 $33,000. With the stock purchase you are risking $33,000 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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Over Half a Million Dollars in Profit!
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Below is a screenshot of the current open trade profit results from Chuck's Weekly Option Alert Trading Service . There are currently $512,698.86 in open trade profits with an average portfolio return of 160.75% demonstrating the ability of the Optioneering Strategy to deliver substantial returns with no losing portfolios. |
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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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