This week we are featuring another of the Investor’s Business Daily (IBD) Top 50 List companies. We use this list in one of our portfolios to identify stocks with momentum and place spreads that profit if the momentum continues, at least a little.
I would also like to include a table which reviews how the previous 12 Trading Idea of the Week selections have worked out in the real world. We have had an exceptionally good record.
Coherent Inc. (COHR) Jumps After Earnings Beat, Is There More Upside Ahead?
Before we discuss this week’s trading idea, I would like to review the past 12 ideas we have published here. Each of these ideas was first distributed to Terry’s Tips’ paid subscribers in our weekly Saturday Report, and then on Monday or Tuesday, to the free newsletter subscribers such as you. Here are the results:
The expiration prices for the 3 spreads which expire next Friday are today’s prices. All of them are safely above the max gain price for the spread.
The only losing trade would have been the BABA one which was a minor loss. The stock closed at $.85 below the max gain price and we had collected $.75 from the spread. Presumably, rather than accept this small loss, we would have rolled over the vertical credit spread to a future date. If we had, it would now look pretty good because BABA closed yesterday at $186.41, well above the max gain 177 strike.
The average gain for the 12 spreads (including the loss) was 39%. If you had risked the same amount on 12 trades that averaged a 39% gain, you would have picked up 468% on your original investment. While these results are a extremely encouraging, we must recognize that the past few months have been ones of generally higher stock prices across the board. Future results might not be this great.
Now, back to our Trading Idea of the Week:
Several analysts have expressed their bullish outlook towards Coherent Inc. following their recent earnings report. Here are two of them – Coherent price target raised to $330 from $270 at Needham and Coherent Inc. can’t be more hot. Just reaches record high.
From a technical perspective, COHR had been consolidating mostly sideways for nearly six months ahead of last week’s earnings report. The earnings beat triggered a gap higher for a range break and the stock held gains to close the week out at record highs. The range break suggests the broader bullish trend has resumed.
If you agree there’s further upside ahead for Coherent Inc., consider this trade which is a bet that the stock will continue to advance at least a little over the next five weeks.
Buy To Open COHR 15Dec17 305 Puts (COHR171215P305)
Sell To Open COHR 15Dec17 310 Puts (COHR171215P310) for a credit of $2.53 (selling a vertical)
This price was $0.02 less than the mid-point of the option spread when COHR was trading near $309. 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 $251 and your broker would charge a $500 maintenance fee, making your investment $249 ($500 – $251). If COHR closes at any price above $310 on December 15, 2017, both options would expire worthless, and your return on the spread would be 101% (1150% 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: 2017 track record, Auto-Trade, Bull Put Credit Spread, Calendar Spreads, Calls, COHR, Credit Spreads, Monthly Options, Portfolio, Profit, profits, Puts, TastyWorks, tdameritrade, Terry’s Tips, thinkorswim, vertical, Weekly Options