For today’s trade of the day we will be looking at a Daily Price chart for Penumbra, Inc. (PEN), states Chuck Hughes of Hughes Optioneering.
Before breaking down PEN’s daily price chart let’s first review which products and services are offered by the company.
Penumbra, Inc., together with its subsidiaries, designs, develops, manufactures, and markets medical devices in the United States and internationally. The company offers aspiration-based thrombectomy systems and accessory devices, including revascularization devices for mechanical thrombectomies, such as Penumbra System under the Penumbra RED, JET, ACE, 3D Revascularization Device, and Penumbra ENGINE brands, as well as components and accessories.
Now, let’s begin to break down the Daily Price chart for PEN. Below is a Daily Price Chart with the price line displayed by an OHLC bar.
Buy PEN Stock
The Daily Price chart above shows that PEN stock has been hitting new 52-Week Highs regularly since early May. Simply put, a stock does not just continually hit a series of new 52-Week Highs unless it is in a very strong bullish trend. The Hughes Optioneering team looks for stocks that are making a series of 52-Week Highs as this is a good indicator that the stock is in a powerful uptrend. You see, after a stock makes a series of two or more 52-Week Highs, the stock typically continues its price uptrend and should be purchased. Our initial price target for PEN stock is 335.00.00 per share.
Profit if PEN is Up, Down, or Flat
Now, since PEN is currently making a series of 52-Week Highs and will likely rally from here, let’s use the Hughes Optioneering calculator to look at the potential returns for a PEN 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 PEN 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 PEN on 5/10/2023 before commissions.
Built-in Profit Potential
For this option spread, the calculator analysis below reveals the cost of the spread is $645 (circled). The maximum risk for an option spread is the cost of the spread. The analysis reveals that if PEN stock is flat or up at all at expiration the spread will realize a 55.0% return (circled). And if PEN stock decreases 10.0% at option expiration, the option spread would make a 24.0% return (circled).
Due to option pricing characteristics, this option spread has a ‘built-in’ 55.0% profit potential when the trade was identified. 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 profit opportunities just like this one.