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.
Micron Technology (MU) Retreats – Can it Hold Above the Psychological $50 Handle?
Micron Technology has posted an impressive gain in the early year and several analysts are expecting more upside. The following two articles provide the details behind this view – 3 Stocks That Could Double Your Money and Bull of the Day: Micron (MU).
MU has declined as of late and is now seen trading near an overwhelming confluence of support. A rising trendline is in play that originates from this year’s low, and near it, the $50 price point comes into play. The stock briefly traded below the psychological handle earlier this month but buyers quickly stepped in to lift it back above the horizontal level. As well, the 20 and 50-day moving averages have converged close to the rising trendline.
If you agree there’s further upside ahead for MU, 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 MU 18MAY18 48 Puts (MU180518P48)
Sell To Open MU 18MAY18 50 Puts (MU180518P50) for a credit of $0.68 (selling a vertical)
This price was $0.02 less than the mid-point of the option spread when MU was trading near $50. 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 $65.50 and your broker would charge a $200 maintenance fee, making your investment $134.50 ($200 – $65.50). If MU closes at any price above $50.00 on May 18, both options would expire worthless, and your return on the spread would be 49% (658% 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.