May 12th, 2022
Prime Entry Opportunity for DVN
Dear Reader,
Yesterday, we looked at a Daily Price Chart of the iShares U.S. Home Construction ETF noting that ITB’s 50-Day EMA is trading below the 100-Day EMA.
For today’s Trade of the Day we will be looking at a Keltner Channel chart for Devon Energy Corp. stock symbol: DVN.
Before breaking down DVN’s daily Keltner Channel chart let’s first review which products and services are offered by the company.
Devon Energy Corporation, an independent energy company, primarily engages in the exploration, development, and production of oil, natural gas, and natural gas liquids in the United States. It operates approximately 5,134 gross wells.
Now, let’s begin to break down the Keltner Channel chart for DVN. Below is a Daily Price Chart and the three Keltner Channels for DVN stock.
Buy DVN 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 DVN daily price chart shows that the stock is in a strong price uptrend and has become overbought several times. You can see this as DVN has traded above the Upper Keltner Channel on multiple occasions recently.
But, in every scenario when DVN 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 DVN stock is 69.50 per share.
Profit if DVN is Up, Down or Flat
Now, since DVN stock is trading in the Keltner Channel ‘Buy Zone’, this offers a prime trade entry opportunity. Let’s use the Hughes Optioneering calculator to look at the potential returns for a DVN call option spread.
The Call Option Spread Calculator will calculate the profit/loss potential for a call option spread based on the price change of the underlying stock/ETF at option expiration in this example from a 10.0% increase to a 10.0% decrease in DVN stock at option expiration.
The goal of this example is to demonstrate the ‘built in’ profit potential for option spreads and the ability of spreads to profit if the underlying stock is up, down or flat at option expiration. Out of fairness to our paid option service subscribers we don’t list the option strike prices used in the profit/loss calculation.
The prices and returns represented below were calculated based on the current stock and option pricing for DVN on 5/11/2022 before commissions.
Built in Profit Potential
For this option spread, the calculator analysis below reveals the cost of the spread is $317 (circled). The maximum risk for an option spread is the cost of the spread.
The analysis reveals that if DVN stock is flat or up at all at expiration the spread will realize a 57.7% return (circled).
And if DVN stock decreases 10.0% at option expiration, the option spread would make a 57.7% return (circled).
Due to option pricing characteristics, this option spread has a ‘built in’ 57.7% profit potential when the trade was initiated.
Option spread trades can result in a higher percentage of winning trades compared to a directional option trade if you can profit when the underlying stock/ETF is up, down or flat.
A higher percentage of winning trades can give you the discipline needed to become a successful trader.
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.
Trade High Priced Stocks for $350 With Less Risk
One of the big advantages to trading option spreads is that spreads allow you to trade high price stocks like Amazon, Google, or Netflix for as little as $350. With an option spread you can control 100 shares of Google for $350. If you were to purchase 100 shares of Google at current prices it would cost about $227,000. With the stock purchase you are risking $227,000 but with a Google option spread that costs $350 your maximum risk is $350 so your dollar risk is lower with option spreads compared to stock purchases.
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 now!
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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