Increased Buying Pressure for ODFL

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Chuck's Trade of the Day

August 30th, 2021

Increased Buying Pressure for ODFL

Dear Reader,

On Friday, we looked at a Monthly Price Chart of Domo, Inc., noting that DOMO’s 1-Month Price is trading above the 10-Month SMA signaling a ‘Buy’.

For today’s Trade of the Day we will be looking at an On Balance Volume chart for Old Dominion Freight Line, Inc. stock symbol: ODFL.

Before breaking down ODFL’s OBV chart let’s first review which products and services are offered by the company.

Old Dominion Freight Line, Inc. operates as a less-than-truckload (LTL) motor carrier in the United States and North America. It provides regional, inter-regional, and national LTL services, including expedited transportation. The company also offers various value-added services, such as container drayage, truckload brokerage, and supply chain consulting.

Confirming a Price Uptrend with OBV

The ODFL daily price chart below shows that ODFL is in a price uptrend as the current price is above the price ODFL traded at six months ago (circled). The On Balance Volume chart is below the daily chart.

On Balance Volume measures volume flow with a single Easy-to-Read Line. Volume flow precedes price movement and helps sustain the price uptrend. When a stock closes up, volume is added to the line. When a stock closes down, volume is subtracted from the line. A cumulative total of these additions and subtractions form the OBV line.

On Balance Volume Indicator

● When Close is Up, Volume is Added

● When Close is Down, Volume is Subtracted

● A Cumulative Total of Additions and Subtractions form the OBV Line

Volume flow precedes price and is the key to measuring the validity and sustainability of a price trend. 

We can see from the OBV chart below that the On Balance Volume line for ODFL is sloping up. An up-sloping line indicates that the volume is heavier on up days and buying pressure is exceeding selling pressure. Buying pressure must continue to exceed selling pressure in order to sustain a price uptrend. So, On Balance Volume is a simple indicator to use that confirms the price uptrend and its sustainability.

The numerical value of the On Balance Volume line is not important. We simply want to see an up-sloping line to confirm a price up trend.

Confirmed ‘Buy’ Signal for ODFL

Since ODFL's OBV line is sloping up, the most likely future price movement for ODFL is up, making ODFL a good candidate for a stock purchase or a call option purchase.

Let's use the Hughes Optioneering calculator to look at the potential returns for an ODFL 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 ODFL 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 ODFL option example, we used the 1% Rule to select the ODFL 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 ODFL in-the-money option strike price, ODFL 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 ODFL stock is flat at 289.78 at option expiration, it will only result in a 4.9% loss for the ODFL 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 ODFL on 8/27/2021 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 ODFL stock increases 5.0% at option expiration to 304.27 (circled), the call option would make 64.8% before commission.

If ODFL stock increases 10.0% at option expiration to 318.76 (circled), the call option would make 134.4% before commission and outperform the stock return more than 13 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.

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

Do you want to start receiving hand-picked trades from 10-Time Trading Champion, Chuck Hughes?

As a Trade of the Day subscriber, Chuck is offering you a special discount on his Weekly Option Alert 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 Huges Signature

Chuck Hughes

Editor, Trade of the Day

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