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.
At Terry’s Tips, we have a portfolio that actually trades most of the ideas we share here. The portfolio has experienced some losses along the way, but so far in 2018, it has recorded an 82% gain after paying all commissions.
Consider RealPage (RP) Following the Technical Break
RealPage has received some positive new coverage as of late, take a look at – What Investors Should Know About RealPage Inc’s Financial Strength and RealPage(RP) Price Target Raised to $67.00 at KeyCorp
On Friday, RP broke higher from a bullish flag pattern that had been forming for nearly four months. The pattern suggests the stock is ready to resume its momentum-driven rally, and break to new record highs. Adding strength to the technical outlook for RP is a 15-month rising trendline which held the stock higher during the recent correction. The length of time the trendline has remained intact reaffirms the momentum remains strongly to the upside for RealPage stock.
If you agree there’s further upside ahead for RP, consider this trade which is a bet that the stock will continue to advance over the next four weeks, or at least not decline very much.
Buy To Open RP 21SEP18 55 Puts (RP180921P55)
Sell To Open RP 21SEP18 60 Puts (RP180921P60) for a credit of $1.08 (selling a vertical)
This price was $0.02 less than the mid-point of the option spread when RP was trading near $61. 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 $105.50 and your broker would charge a $500 maintenance fee, making your investment $394.50 ($500 – $105.50). If RP closes at any price above $60 on September 21, both options would expire worthless, and your return on the spread would be 27% (428% 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.