Weekend Trader Alert
September 18, 2022
Open Positions Update
There are no portfolio updates this week.The following is this week's recommendation:
Allstate (ALL)Place a limit order to buy the Allstate (ALL) January 20, 2023 125-strike call at a limit price within range of the current market asked price when you place your order. At the close on Friday, September 16, this option was offered at $11.90. ALL closed at $129.42 on Friday, September 16.Do not attempt to enter this position after Monday's close.Please use the following guidelines to manage the position:- Exit the position if the option is at a 100% gain from your entry price.
- If the option has not reached its target profit by 3:00 p.m. Eastern time on Monday, October 17, close the position.
- If there is a change to the above closeout parameters, we will notify you in your regular Sunday evening communication.
Insurance concern Allstate (ALL) recently reported catastrophic numbers that came in below its threshold level for August, while increasing rates in 72 locations by more than 10%. What’s more, the shares broke out of downtrend only to pull right back into it, faking out buyers as it bounced. However, the equity is now back above all major daily, weekly, and monthly averages, as well as its 2020 highs, and have pushed back above double its 2020 lows at $128.26.
It’s also worth noting that the price action that is currently playing out for Allstate stock is similar to its second major bottom at the 2020, Covid-19 low anchored volume-weighted average price (AVWAP), when prices rallied extensively off that level. This means shares could be poised for another big rally after a period of consolidation. With the security also now back above its daily and weekly volume points of control (VPOC), we are recommending a new long position on ALL.
There’s plenty of room for analysts to shift into a more bullish stance, given 11 of the 21 firms in coverage still carry a tepid "hold" or worse rating. Plus, a break above the October 130-strike level could produce a squeeze scenario, with large call open interest (OI) currently concentrated.
Plus, Allstate stock has frequently exceeded option traders' volatility expectations over the past year. This is per the equity’s Schaeffer's Volatility Scorecard (SVS), which ranks at an elevated 81 out of 100. Our recommended January 20, 2023 125-strike call has a leverage ratio of 6.7, and will double in value on a 15.2% rise in the underlying equity.
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