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 actual Terry’s Tips portfolio that places trades that you read about here has gained 99.7% so far in 2018. That’s pretty close to doubling our money in less than six months, and all the paying Terry’s Tips subscribers who are following that portfolio, either on their own or through the free Auto-Trade service offered by thinkorswim are happy campers right now.
Grubhub (GRUB) Offers An Attractive Entry Point
Grubhub’s stock price recently broke higher and several analysts expect the upside momentum to continue. This article published on Benzinga includes a target that suggests about a 20% upside. A detailed article outlining why there could be more upside in GRUB was also published on InvestorPlace. While the second article has a bit more of a conservative target, it still points to a potential 10% gain in the stock price.
The GRUB technical chart is signaling a bullish continuation. The stock price broke out from a bullish flag pattern in early May and has more recently cleared above a clear horizontal resistance level found near $105. The same level should protect any corrections for bulls to remain in control. The stock price has also consistently traded above its 20-day moving average since the bull flag was activated.
If you agree there’s further upside ahead for GRUB, consider this trade which is a bet that the stock will continue to advance over the next five weeks, or at least not decline very much.
Buy To Open GRUB 29JUN18 105 Puts (GRUB180629P105)
Sell To Open GRUB 29JUN18 107 Puts (GRUB180629P107) for a credit of $0.83 (selling a vertical)
This price was $0.02 less than the mid-point of the option spread when GRUB was trading near $108. 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 $80.50 and your broker would charge a $200 maintenance fee, making your investment $119.50 ($200 – $80.50). If GRUB closes at any price above $107 on June 29, both options would expire worthless, and your return on the spread would be 67% (978% 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, Bull Put Credit Spread, Bullish Options strategies, Calls, Credit Spreads, GRUB, Monthly Options, Portfolio, Profit, profits, Puts, Risk, Stocks vs. Stock Options, TastyWorks, Terry’s Tips, thinkorswim, Weekly Options