This week we are featuring another of the Investor’s Business Daily (IBD) Top 50 List companies. We use this list in one of our portfolios to spot outperforming stocks and place spreads that take advantage of the momentum. The 10 actual option portfolios carried out by Terry’s Tips for its paying subscribers have gained an average of 108% for 2017. This is down a little from a few weeks ago because many of the tech stocks that we trade options on have fallen over the past few weeks. We are still pleased with the composite results, however. (One of our newest portfolios adds the Trading Idea of the Week that we send out to you each week to its holdings).
Floor & Decor Holdings (FND) Is Set To Grow
Investors are optimistic about the outlook for FND after a recent Moody’s upgrade and an upgrade from Zacks Investment Research to a buy rating with a $46.00 price target.
The technical outlook for FND is also positive as the stock broke above a significant horizontal level at $42.43 in the past week. As a result, the stock printed the highest weekly close to date. The technical break signals the potential for a breakout and dips are likely to be bought ahead of the horizontal level.
If you agree there’s further upside ahead for Floor & Décor Holdings, consider this trade which is a bet that the stock will continue to advance at least a little over the next six weeks.
Buy To Open FND 19Jan18 40 Puts (FND180118P40)
Sell To Open FND 19Jan18 45 Puts (FND180118P45) for a credit of $1.58 (selling a vertical)
This price was $0.02 less than the mid-point of the option spread when FND was trading near $45. 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 $156 and your broker would charge a $500 maintenance fee, making your investment $344 ($500 – $156). If FND closes at any price above $45 on January 19, 2018, both options would expire worthless, and your return on the spread would be 45% (414% 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.