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 real-life Terry’s Tips portfolio that trades these spreads has gained 97% so far in 2018, and has 4 spreads in place that will increase the gain to 123% in 3 weeks if the underlying stock prices hold their current prices or go up by any amount. And the year will not be half over by then. Clearly, we have some happy campers who subscribe to our newsletter service, especially those who are having trades placed in their account through the Auto-Trade service offered by thinkorswim.
Can Nvidia (NVDA) Continue Its Earnings-driven momentum?
Several analysts have renewed their bullish NVDA outlook following their recent earnings report. Here are two of them – Why Nvidia (NVDA) Is a Strong Buy and Nvidia Seen Soaring to Record on Explosive Growth.
NVDA pushed firmly higher following earnings earlier this month, gapping above a horizontal level at $239. After briefly piercing to a record high, the stock has consolidated lower. Buyers have stepped in slightly ahead of the horizontal level with the 20-day moving average providing additional support. This area remains an important zone of support for NVDA.
If you agree there’s further upside ahead for NVDA, 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 NVDA 22JUN18 242.5 Puts (NVDA180622P242.5)
Sell To Open NVDA 22JUN18 245 Puts (NVDA180622P245) for a credit of $0.93 (selling a vertical)
This price was $0.02 less than the mid-point of the option spread when NVDA was trading near $249. 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 NVDA closes at any price above $242.5 on June 22, both options would expire worthless, and your return on the spread would be 68% (834% 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, Bullish Options strategies, Credit Spreads, Earnings Option Strategy, Earnings Play, Investors Business Daily, Monthly Options, NVDA, Portfolio, Profit, profits, Puts, Risk, TastyWorks, Terry’s Tips, thinkorswim, Weekly Options