May 31st, 2022
Long-term ‘Buy’ Signal for APA
Dear Reader,
On Friday, we looked at a Daily Price Chart of Block Inc., noting that the stock was trading above the lower Keltner Channel in the ‘Sell Zone’.
For today’s Trade of the Day e-letter we will be looking at a monthly chart for APA Corporation stock symbol: APA.
Before breaking down APA’s monthly chart let’s first review what products and services the company offers.
APA Corporation, through its subsidiaries, explores for, develops, and produces oil and gas properties. It has operations in the United States, Egypt, and the United Kingdom, as well as has exploration activities offshore Suriname. The company also operates gathering, processing, and transmission assets in West Texas, as well as holds ownership in four Permian-to-Gulf Coast pipelines.
Now, let’s begin to break down the monthly chart for APA stock.
Below is a 10-Month Simple Moving Average chart for APA Corporation.
Buy APA Stock
As the chart shows, in November, 2020, the APA 1-Month Price, crossed above the 10-Month simple moving average (SMA).
This crossover indicated the buying pressure for APA 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 APA is 52.50 per share.
67.0% Profit Potential for APA Option
Now, since APA’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 APA 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 APA 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 APA option example, we used the 1% Rule to select the APA 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 APA in-the-money option strike price, APA 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 APA stock is flat at 47.75 at option expiration, it will only result in a 2.2% loss for the APA 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 APA on 5/27/2022 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 APA stock increases 5.0% at option expiration to 50.14 (circled), the call option would make 32.4% before commission.
If APA stock increases 10.0% at option expiration to 52.53 (circled), the call option would make 67.0% before commission and outperform the stock return more than 6 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.
Get Chuck's Trades Sent to You!
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 Hughes
Editor, Trade of the Day
Have any questions? Email us at dailytrade@chuckstod.com
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