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.
Bauzun (BZUN) Breaks To Fresh Highs Following Earnings Report
BZUN had consolidated for about two and a half months prior to last week’s break. The consolidation took the form of a triangle pattern and the bullish break suggests the stock has resumed its uptrend. Near-term support will be at the upper line of the broken triangle pattern. Upside momentum has been strong and a sustained break above the psychological $50 barrier are additional points that should encourage bulls.
If you agree there’s further upside ahead for BZUN, consider this trade which is a bet that the stock will continue to advance over the next four weeks, or at least a little bit.
Buy To Open BZUN 15JUN18 50 Puts (BZUN180615P50)
Sell To Open BZUN 15JUN18 55 Puts (BZUN180615P55) for a credit of $1.88 (selling a vertical)
This price was $0.02 less than the mid-point of the option spread when BZUN was trading near $55. 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 $185.50 and your broker would charge a $500 maintenance fee, making your investment $314.50 ($500 – $185.50). If BZUN closes at any price above $55 on June 15, both options would expire worthless, and your return on the spread would be 59% (861% 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.
Tags: Auto-Trade, Bauzun, Bull Put Credit Spread, Bullish Options strategies, BZUN, Calls, Credit Spreads, Monthly Options, Portfolio, Profit, profits, Puts, Risk, TastyWorks, Terry’s Tips, thinkorswim, Weekly Options