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Align Technologies Consolidates In a Range, Is It Ready To Break Higher?

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This week we are looking at another of the Investor’s Business Daily (IBD) Top 50 List companies.  We use this list in one of our options portfolios to spot outperforming stocks and place option spreads that take advantage of the momentum.

Terry

Align Technologies Consolidates In a Range, Is It Ready To Break Higher?

Align Technology posted a strong performance last year.  Not only did it outperform its sector, it was also ranked the top-performing stock in the S&P 500 for 2017.  The following articles outline the details – 3 Growth Stocks I’m Holding Onto No Matter How Bumpy the Market Gets and Is Align Technology (ALGN) Outperforming Other Medical Stocks This Year?

From a technical perspective, ALGN has been mostly consolidating within a range over the last few months.  Ahead of the recent earning’s call, the stock briefly dipped below range support at $243 but it managed to regain it following the earnings report.  Current prices offer an opportunity to buy the stock near the lower bound of the consolidation.  There is some potential for an upside break, in line with the broader trend.  The rationale being that a quite few of the stocks listed in the IBD Top 50 list have shown strength in the past week and some have even broken to fresh highs.  This signals some potential that the bullish trend may have resumed in the markets.

ALGN Chart May 2018 - vertical put spread

ALGN Chart May 2018 – Free Trade

*source Tradingview.com

If you agree there’s further upside ahead for ALGN, consider this trade which is a bet that the stock will continue to advance over the next five weeks, or at least not decline very much.

Buy To Open ALGN 08JUN18 255 Puts (ALGN180608P255)
Sell To Open ALGN 08JUN18 257.5 Puts (ALGN180608P257.5) for a credit of $1.13 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when ALGN was trading near $259.  Unless the stock rallies quickly from here, you should be able to get close to this amount.

Your commission on this trade will only be $2.50 per spread (the rate charged by thinkorswim for Terry’s Tips’ subscribers).  Each contract would then yield $110.50 and your broker would charge a $250.00 maintenance fee, making your investment $139.50 ($250 – $110.50).  If ALGN closes at any price above $257.50 on June 8, both options would expire worthless, and your return on the spread would be 79% (904% annualized).

Changes to Investor’s Business Daily (IBD) Top 50 This Week:

We have found that the Investor’s Business Daily Top 50 List has been a reliable source of stocks that are likely to move higher in the short run.  Recent additions to the list might be particularly good choices for this strategy, and deletions might be good indicators for exiting a position that you might already have on that stock.

As with all investments, you should only make option trades with money that you can truly afford to lose.

Happy trading,

Terry

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