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.
Is Stamps.com (STMP) Ready to Resume Higher?
Zacks research recently wrote a compelling article outlining why STMP is poised for further gains. As well, this analyst believes there is potential for about a 30% upside based on their recent price target revision.
From a technical perspective, STMP has been consolidating sideways following a gap up in late February that was inspired by a stellar earnings report. The consolidation is an indication of strength when considering that the markets have been under pressure as of late. Buyers have stepped in to keep the stock trading above the $190 price point and an upside hurdle is seen around $210 as it has held the stock lower on a few attempts this year.
If you agree there’s further upside ahead for Stamps.com, 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 STMP 27APR18 192.5 Puts (STMP180427P192.5)
Sell To Open STMP 27APR18 195 Puts (STMP180427P195) for a credit of $0.98 (selling a vertical)
This price was $0.02 less than the mid-point of the option spread when STMP was trading near $201. 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 $95.50 and your broker would charge a $250 maintenance fee, making your investment $154.50 ($250 – $95.50). If STMP closes at any price above $195.00 on April 27, both options would expire worthless, and your return on the spread would be 62% (778% 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.