This week we are featuring another option trading idea based on a selection from Investor’s Business Daily (IBD) Top 50 List.  I hope that it is of interest to you.

Terry

Is Arista Networks (ANET) Ready For An Acceleration To The Upside?

Arista Networks is up 56.3% YTD and recently published articles indicate the stock is poised for more upside.  Here are two of them – With legal risks fading, Barclays raises Arista Networks target and Needham: 100G upgrade cycle is a boon for Arista Networks.

If you concur with the views expressed by these analysts, consider making this trade which is a bet that ANET will continue to advance (or at least not decline very much) over the next five weeks:

Buy To Open ANET 21Jul17 145 puts (ANET170721P145)

Sell To Open ANET 21Jul17 150 puts (ANET170721P150) for a credit of $1.80 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when ANET was trading slightly above $150.  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 $2 per contract (and there is no commission on closing trades, only the $.10 clearing fee).  Each contract would then yield $178 and your broker would charge a $500 maintenance fee, making your investment $322 ($500 – $178).  If ANET closes at any price above $150 on July 17, 2017, both options would expire worthless, and your return on the spread would be 55% (572% annualized).

Changes to Investor’s Business Daily (IBD) Top 50 This Week:

IBD Underlying Updates June 19, 2017

IBD Underlying Updates June 19, 2017

IBD Underlying Updates June 16, 2017

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.  The Terry’s Tips portfolio which places spreads like the above one has gained 76% in the first five months of 2017 in spite of incurring some losses on some of the spreads placed.  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.

Happy trading,

Terry

Tags: , , , , , , , , , ,



Source link