For today’s trade of the day e-letter we will be looking at a monthly chart for Welltower Inc. (WELL), states Chuck Hughes of Hughes Optioneering, states Chuck Hughes of Hughes Optioneering.
Before breaking down WELL’s monthly chart let’s first review what products and services the company offers.
Welltower Inc., a real estate investment trust and S&P 500 company headquartered in Toledo, Ohio, is driving the transformation of healthcare infrastructure. Welltower invests with leading senior housing operators, post-acute providers, and health systems to fund the real estate infrastructure needed to scale innovative care delivery models and improve people's wellness and overall healthcare experience.
Now, let’s begin breaking down the monthly WELL stock chart. Below is a ten-month Simple Moving Average chart for Welltower Inc.
Buy WELL Stock
As the chart shows, in April, the WELL One-Month Price, crossed above the 10-Month simple moving average (SMA). This crossover indicated the buying pressure for WELL 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 one-month Price is still above the 10-month SMA. That means the bullish trend is still in play! As long as the one-month price remains above the ten-month SMA, the stock will likely keep trading at new highs and should be purchased. Our initial price target for WELL is 89.50 per share.
98.4% Profit Potential for WELL Option
Now, since WELL’s One-Month Price is trading above the Ten-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 a WELL 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 WELL 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 WELL option example, we used the 1% Rule to select the WELL 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 WELL in-the-money option strike price, WELL stock only has to increase 1% for the option to break even 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 WELL stock is flat at 84.79 at option expiration, it will only result in an 8.3% loss for the WELL 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 options 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 WELL on 9/18/2023 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 the WELL stock increases 5.0% at option expiration to 89.03 (circled), the call option will make 45.0% before the commission.
If the WELL stock increases 10.0% at option expiration to 93.27 (circled), the call option would make 98.4% before the commission and outperform the stock return by nearly ten to one. 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 profit opportunities just like this one.
