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.
The actual Terry’s Tips portfolio which trades essentially every weekly play that we send to you has gained 91% so far this year (after paying all commissions, of course). The portfolio started out the year with $5000, and on June 15, 2018, we withdrew $5000 from the portfolio so that all subscribers who followed it would all their money back and be playing with pure profits. The portfolio is now worth $4552.
I especially like this week’s idea because I like Mastercard and believe that last week’s weakness in the stock price was unwarranted. Enjoy the full report below.
Mastercard (MA) Expected to Continue the Steady Rise
Among the list of IBD Top 50 companies Mastercard stands out as its uptrend is far steadier than any of the other companies. These two articles suggest the stock will continue the trend – Mastercard’s Stock May Have Big Gains Ahead and Mastercard’s Strategy Suggests Further Stock Price Growth Ahead After 60% Rise.
MA has been trading in an uptrend channel that originates back to a low posted in December 2017. The stock price pulled back in the past week and is near support that consists of a horizontal level at $208 as well as the 20-day moving average. Slightly below the support confluence is the lower bound of the uptrend channel. In this context, the stock appears to be well support with a clear upside bias.
If you agree there’s further upside ahead for MA, 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 MA 12OCT18 207.5 Puts (MA181012P207.5)
Sell To Open MA 12OCT18 210 Puts (MA181012P210) for a credit of $0.93 (selling a vertical)
This price was $0.02 less than the mid-point of the option spread when MA was trading near $211. 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 $90.50 and your broker would charge a $250 maintenance fee, making your investment $159.50 ($250 – $90.50). If MA closes at any price above $210 on October 12, both options would expire worthless, and your return on the spread would be 57% (650% 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.