Strong 'Buy' Signal for ALLY Stock

December 10th, 2020 Strong 'Buy' Signal for ALLY Stock Dear Reader, Yesterday, we looked at a Daily Price Chart of ON Semiconductor Corp., noting that the ON's OBV line is sloping up, validating the stock's bullish run. For today's Trade of the Day e-letter we will be looking at a monthly chart for Ally Financial Inc. stock symbol: ALLY. Before breaking down ALLY's monthly chart let's first review what products and services the company offers. Ally Financial Inc., a bank holding company, provides various digital financial products and services to consumer, commercial, and corporate customers primarily in the United States and Canada. It operates through Automotive Finance Operations, Insurance Operations, Mortgage Finance Operations, and Corporate Finance Operations segments. The company, through its subsidiary, Ally Bank, also offers commercial banking products and services. In addition, it provides securities brokerage and investment advisory services. Now, let's begin to break down the monthly chart for ALLY stock. Below is a 10-Month Simple Moving Average chart for Ally Financial Inc.

Buy ALLY Stock As the chart shows, in August, the ALLY 1-Month Price, crossed above the 10-Month simple moving average (SMA). This crossover indicated the buying pressure for ALLY 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 ALLY stock is 38.45 per share.

88.6% Profit Potential for ALLY Option Now, since ALLY'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 ALLY 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 ALLY 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 ALLY option example, we used the 1% Rule to select the ALLY 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 ALLY in-the-money option strike price, ALLY 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 ALLY stock is flat at 33.53 at option expiration, it will only result in a 3.3% loss for the ALLY 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 ALLY on 12/9/2020 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 ALLY stock increases 5.0% at option expiration to 35.21 (circled), the call option would make 42.6% before commission. If ALLY stock increases 10.0% at option expiration to 36.88 (circled), the call option would make 88.6% before commission and outperform the stock return nearly 9 to 1. And if ALLY stock increases to our initial price target of 38.45 at option expiration the call option would make 131.5% before commission. 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. Start Getting Trades from the Champion I want to start sending YOU trades! And since you are a Trade of the Day subscriber I'm giving you a special discount on my 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 Hughes Editor, Trade of the Day

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