POSTED BY CHUCK HUGHES | FEB 13, 2024 | CHUCK’S TRADE OF THE DAY

Today I am going to walk you through a great potential trade. Not only will we look at which ticker is setting up, I will layout the amazing indicator that helped me spot this one and many others.

For yesterday, Trade of the Day e-letter we will be looking at a Moving Average Convergence/ Divergence (MACD) chart for Brown & Brown Inc. stock symbol: BRO.

Brown & Brown, Inc. markets and sells insurance products and services primarily in the United States and other parts of the world. The company reports through four segments: The Retail segment provides a broad range of insurance products and services to commercial, public and quasi-public entities and to professional and individual customers. 

MACD Buy Signal

The BRO daily price chart below shows that BRO is in a price uptrend as the 24/52 day MACD line (black line) is above the 18-Day EMA (purple line). The Moving Average Convergence/ Divergence chart is shown below the daily price chart.

The 18-Day EMA line functions as a buy/sell ‘trigger’. When the 24/52 Day MACD line crosses above the 18-Day EMA line it indicates positive momentum and higher prices for the stock.

Buy BRO Stock

As long as the 24/52 Day MACD line remains above the 18-Day EMA, the stock is more likely to keep trading at new highs in the coming days and weeks.

Since BRO’s bullish run is likely to continue, the stock should be purchased.

114.4% Profit Potential for BRO Option

Now, since BRO’s 24/52 Day MACD is trading above the 18-Day EMA 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 BRO 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 BRO 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 BRO option example, we used the 1% Rule to select the BRO 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 BRO in-the-money option strike price, BRO 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 BRO stock is flat at 80.95 at option expiration, it will only result in a 9.2% loss for the BRO 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 BRO on 2/13/2024 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 BRO stock increases 5.0% at option expiration to 85.00 (circled), the call option would make 52.6% before commission. 

If BRO stock increases 10.0% at option expiration to 89.05 (circled), the call option would make 114.4% before commission and outperform the stock return more than 11 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 profit opportunities just like this one.