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.
Match Group (MTCH) Surges to Record Highs, What’s Next?
Match Group broke to record highs in the past week and several analysts believe there is more upside, here are two of them – Match Group Is Still Undervalued and Wall Street is Falling in Love With Match Stock.
The main focus from a technical perspective is the upside momentum triggered by the recent earnings beat. MTCH climbed above major resistance that is found between $47.00 and $48.65 to trade to record highs. Recall that the stock traded in this resistance area ahead of the steep fall on news of Facebook launching a new dating service at the start of May. In the process of breaking to new highs, a succession of higher highs and lower highs has materialized from the May low. As often seen, the prior resistance area is now considered strong support, suggesting that dips in the stock will be short-lived.
MTCH Chart August 2018
If you agree there’s further upside ahead for MTCH, 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 MTCH 21SEP18 47 Puts (MTCH180821P47)
Sell To Open MTCH 21SEP18 50 Puts (MTCH180821P50) for a credit of $1.03 (selling a vertical)
This price was $0.02 less than the mid-point of the option spread when MTCH was trading near $51. 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 $100.50 and your broker would charge a $300 maintenance fee, making your investment $199.50 ($300 – $100.50). If MTCH closes at any price above $50 on September 21, both options would expire worthless, and your return on the spread would be 50% (468% annualized).
Changes to Investor’s Business Daily (IBD) Top 50 This Week:
IBD Underlying Updates August 9, 2018
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.
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