This week we are discussing a well-known company that is listed on the Investor’s Business Daily (IBD) Top 50 List. In one of our portfolio’s, we screen this list to identify trending stocks to place spreads that profit if the stock continues higher. Actually, the stock can even decline a little to realize the maximum gain.
Terry’s Tips carries out 10 different portfolios for paying subscribers. Each portfolio is set up in an actual broker account and all results include full commissions. Last week was an unusually good one for these portfolios – every one of them made gains, and the average composite gain was a whopping 8.9%. So far in 2017, these portfolios have picked up an average of 67.8%. How sweet it is.
Facebook (FB) Is Set To Resume Higher After The Price Correction
Several analysts believe there is further upside ahead for Facebook, here are two of them – Why Facebook Inc (FB) Stock Can Still Run Much Higher and Flagging Facebook Inc (FB) Stock for a Bullish Breakout.
The second article identifies a bull flag pattern which offers a technical signal for a bullish continuation. Alternatively, the price action that takes place from around the end of July to late September can be viewed as a pennant. Both patterns signal the same thing which is a continuation of the bullish trend.
Continuation patterns tend to be respected by technical traders, especially when it follows a strong uptrend which has been the case with Facebook.
If you agree there’s further upside ahead for Facebook, consider this trade which is a bet that the stock will continue to advance, or at least not decline very much over the next seven weeks.
Buy To Open FB 20Oct17 165 Puts (FB171020P165)
Sell To Open FB 20Oct17 170 Puts (FB171020P170) for a credit of $1.59 (selling a vertical)
This price was $0.02 less than the mid-point of the option spread when FB was trading near $172. Unless the stock rallies quickly from here, you should be able to get close to this amount.
If you use our favorite broker for this trade, tastyworks, your commission on this trade will only be $1 per opening contract ($2 per spread) (and there is no commission on closing trades, only the $.10 clearing fee). Each contract would then yield $157 and your broker would charge a $500 maintenance fee, making your investment $343 ($500 – $157). If FB closes at any price above $170 on October 20, 2017, both options would expire worthless, and your return on the spread would be 46% (340% 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.