This week we are discussing another one of the Investor’s Business Daily (IBD) Top 50 List companies. We use this list in one of our portfolio’s to find stocks that have displayed consistent upwards momentum and we look to place spreads that take advantage of this underlying strength.
Transunion (TRU): A Stable and Consistent Player
Several analysts have recently refreshed their bullish outlook towards Transunion. UBS Asset Management has increased their stake in the company and both Morgan Stanley as well as Deutsche Bank have raised their price targets to $50.
Transunion has been trading higher within a rising trend channel since the middle of February. After testing the lower line of the trend channel in the past week, the stock recovered to hit a fresh 52-week high. The $44.45 level held the stock price lower for a month prior to finally breaking above it earlier this month. The level is now viewed as support and its proximity to the 20-day moving average as well as the channel bottom emphasizes the area as strong support.
If you concur that there’s further upside ahead for Transunion, consider this trade which is a bet that the stock will continue to advance, at least a little.
Buy To Open TRU 15SEP17 45 Puts (TRU170915P45)
Sell To Open TRU 15SEP17 46 Puts (TRU170915P46) for a credit of $0.46 (selling a vertical)
This price was $0.02 less than the mid-point of the option spread when TRU was trading just above $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 $44 and your broker would charge a $100 maintenance fee, making your investment $56 ($100 – $44). If TRU closes at any price above $46 on September 15, 2017, both options would expire worthless, and your return on the spread would be 78% (624% 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. The Terry’s Tips portfolio which places spreads like the above one has gained 114.7% so far in 2017 in spite of incurring some losses on some of the spreads placed. 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.