'Buy Zone' Alert for Marathon Oil

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Chuck's Trade of the Day

February 18th, 2022

‘Buy Zone’ Alert for Marathon Oil

Dear Reader,

Yesterday, we looked at a Daily Price Chart of American Express Co. noting the stock has been making a series of 52-Week Highs since early February.

For today’s Trade of the Day we will be looking at a Keltner Channel chart for Marathon Oil, stock symbol: MRO.

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

Marathon Oil Corporation operates as an independent exploration and production company in the United States and internationally. It engages in the exploration, production, and marketing of crude oil and condensate, natural gas liquids, and natural gas; and the production and marketing of products manufactured from natural gas, such as liquefied natural gas and methanol.

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

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

But, in every scenario when MRO 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 MRO stock is 23.60 per share.

78.9% Profit Potential for MRO Option

Now, since MRO stock is currently trading is the ‘Buy Zone’, this offers us a prime trade entry opportunity. Let’s use the Hughes Optioneering calculator to look at the potential returns for a MRO 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 MRO 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 MRO option example, we used the 1% Rule to select the MRO 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 a MRO in-the-money option strike price, MRO 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 MRO stock is flat at 21.94 at option expiration, it will only result in a 5.8% loss for the MRO 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 MRO on 2/17/2022 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 MRO stock increases 5.0% at option expiration to 23.04 (circled), the call option would make 36.6% before commission.

If MRO stock increases 10.0% at option expiration to 24.13 (circled), the call option would make 78.9% before commission and outperform the stock return nearly 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.

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.

Average Portfolio Return of 233.6%

Below is a screenshot of the current open trade profit results from Chuck’s Weekly Option Alert Trading Service. There are currently $566,218.22 in open trade profits with an average portfolio return of 233.6% demonstrating the ability of the Optioneering Strategy to deliver substantial returns with no losing portfolios.

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! You can also click here to schedule a call. 

 

Wishing You the Best in Investing Success,

Chuck Huges Signature

Chuck Hughes

Editor, Trade of the Day

Have any questions? Email us at dailytrade@chuckstod.com

 

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