Prime Buying Opportunity for CBOE

November 12^th, 2021

Prime Buying Opportunity for CBOE

Dear Reader,

Yesterday, we looked at a Daily Price Chart of Tradeweb Markets, Inc. noting that the stock’s 50-Day EMA is trading above the 100-Day EMA.

For today’s Trade of the Day we will be looking at a Keltner Channel chart for Cboe Global Markets, Inc. stock symbol: CBOE.

Before breaking down CBOE’s daily Keltner Channel chart let’s first review which products and services are offered by the company.

Cboe Global Markets, Inc., through its subsidiaries, operates as an options exchange worldwide. It operates through five segments: Options, North American Equities, Futures, European Equities, and Global FX.

Now, let’s begin to break down the Keltner Channel chart for CBOE. Below is a Daily Price Chart and the three Keltner Channels for CBOE stock.

Buy CBOE Stock

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 CBOE daily price chart shows that the stock is in a strong price uptrend and has become overbought several times. You can see this as CBOE has traded above the Upper Keltner Channel on multiple occasions recently.

But, in every scenario when CBOE became overbought, the stock soon 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 CBOE stock is 140.00 per share.

87.7% Profit Potential for CBOE Option

Now, since CBOE is currently trading in the Keltner Channel ‘Buy Zone’, let’s use the Hughes Optioneering calculator to look at the potential returns for a CBOE 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 CBOE 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 CBOE option example, we used the 1% Rule to select the CBOE 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 CBOE in-the-money option strike price, CBOE 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 CBOE stock is flat at 129.20 at option expiration, it will only result in a 1.7% loss for the CBOE 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 can 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 CBOE on 11/11/2021 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 CBOE stock increases 5.0% at option expiration to 135.66 (circled), the call option would make 43.0% before commission.

If CBOE stock increases 10.0% at option expiration to 142.12 (circled), the call option would make 87.7% before commission and outperform the stock return nearly 9 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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Prime Buying Opportunity for CBOE

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