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.
Has The Tide Turned in Paycom Software (PAYC)?
Investor’s Business Daily, the website belonging to the creators of the IBD Top 50 list, named PAYC their IBD Stock of the Day on Friday. Take a look at the article here for the reason behind the choice. As well, an article published on The Motley Fool explains why Paycom Software is one of three stocks the analyst just added to his retirement portfolio.
After consolidating lower within a correction for about a month or so, PAYC has turned decisively higher, crossing above an important barrier. Two prior attempts since May at the horizontal resistance level near $110 resulted in a notable correction, however, the stock managed to climb above it last week to signal that bulls may be retaking control. The level has been significant since April, acting as both support and resistance. In addition to the horizontal level, the stock has comfortably regained its 20-day moving average and trades near 52-week highs.
If you agree there’s further upside ahead for PAYC, 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 PAYC 20JUL18 105 Puts (PAYC180720P105)
Sell To Open PAYC 20JUL18 110 Puts (PAYC180720P110) for a credit of $1.33 (selling a vertical)
This price was $0.02 less than the mid-point of the option spread when PAYC was trading near $112. 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 $130.50 and your broker would charge a $500 maintenance fee, making your investment $369.50 ($500 – $130.50). If PAYC closes at any price above $110 on July 20, both options would expire worthless, and your return on the spread would be 35% (399% 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, Calls, Credit Spreads, Earnings Announcement, Earnings Option Strategy, Earnings Play, Monthly Options, PAYC, Portfolio, Profit, profits, Puts, Risk, Stocks vs. Stock Options, TastyWorks, Terry’s Tips, thinkorswim, Weekly Options