This week we are featuring a company listed on the Investor’s Business Daily (IBD) Top 50 List that broke to an all-time high in the past week. In one of our portfolio’s, we use the IBD Top 50 List to find stocks that show strong upward momentum and place spreads which will profit if the upward momentum continues. Actually, the stock can even fall a little for the maximum gain to be realized on these spreads.
Macom Tech Solutions (MTSI) Surges to All-Time High, What’s Next?
Macom Technology Solutions had its price target recently raised by Needham & Company and several firms have added to already sizeable positions. Here are two of them- First Trust Advisors LP Increases Stake in Macom Technology Solutions Holdings and FMR LLC Boosts Position in Macom Technology Solutions Holdings.
MTSI has been in an uptrend since late 2012 and broke to an all-time high in the past week. The technical break followed an 8-week consolidation below a horizontal resistance level at $61.25 which is now viewed as strong support. MTSI surged above the level on Thursday and held near its highs into the weekly close to offer confirmation of a sustained bullish break.
If you concur that there’s further upside ahead for Macom Technology Solutions, consider this trade which is a bet that the stock will continue to advance, or at least not decline very much over the next four weeks.
Buy To Open MTSI 18Aug17 55 Puts (MTSI170818P55)
Sell To Open MTSI 18Aug17 60 Puts (MTSI170818P60) for a credit of $1.18 (selling a vertical)
This price was $0.02 less than the mid-point of the option spread when MTSI was trading near $63. 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 $116 and your broker would charge a $500 maintenance fee, making your investment $384 ($500 – $116). If MTSI closes at any price above $60 on August 18, 2017, both options would expire worthless, and your return on the spread would be 30% (395% annualized).
Changes to Investor’s Business Daily (IBD) Top 50 This Week:
IBD Underlying Updates July 21, 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 113.5% so far in 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.
Tags: Bullish Options strategies, Calls, Credit Spreads, IBD, implied volatility, Monthly Options, MTSI, Portfolio, Profit, Puts, Risk, TastyWorks, Terry’s Tips, thinkorswim, Volatility, Weekly Options