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Archive for February, 2020

Alibaba (BABA) – a Stock to Buy Following Earnings

Monday, February 17th, 2020

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.

Alibaba’s earnings came in ahead of expectations and, as per MarketWatch, three analysts have revised up their price targets since. Take a look at the following article which discusses how the Coronavirus might alter consumer behavior to Alibaba’s benefit –  Alibaba’s Looking For Black Swan Opportunities, and also check out this article published by Zack’s which breaks down the earnings report – Alibaba (BABA) Surpasses Q3 Earnings & Revenue Estimates.

Technicals

Earlier this year, BABA scaled above the 2018 high of $212 to trade at a fresh record high. There was a correction since, however, the price action over the past few weeks shows the stock regaining some momentum and holding above the prior high which is now viewed as support. Further, the 50-day moving average comes into play and held the stock higher on a dip earlier this month. A rally above recent highs at $226 can offer confirmation of a bullish continuation while it would take a sustained drop below $212 to alter the near-term bullish view.

BABA Chart February 2020 vertical options spread

BABA Chart February 2020

If you agree there’s further upside ahead for BABA, consider this trade which is a bet that the stock will continue to advance over the next five weeks, or at least a little.

Buy To Open BABA 20MAR20 215 Puts (BABA200320P215)
Sell To Open BABA 20MAR20 220 Puts (BABA200320P220) for a credit of $2.20 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when BABA was trading near $220.  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 $1.30 per spread.  Each contract would then yield $218.70 and your broker would charge a $500 maintenance fee, making your investment $281.30 ($500 – $218.70).  If BABA closes at any price above $220 on March 20, both options would expire worthless, and your return on the spread would be 78% (890% annualized).

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

IBD Underlying Updates February 15, 2020

IBD Underlying Updates February 15, 2020

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.

Happy trading,

Terry

New Oriental Education & Technology (EDU) is Regaining Strength After a Brief Dip

Monday, February 10th, 2020

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.

After a brief dip following the latest earnings report, New Oriental Education & Technology is showing renewed upward momentum. The technical charts suggest that the stock is ready to move higher and the Investor Business Daily recently published an article along the same lines – Stock Upgrades: New Oriental Education & Technology Gets High Marks For Relative Strength. Also check out the following article on SeekingAlpha which provides an outlook following the recent earnings report – New Oriental Education: Quality Compounder At A Reasonable Price.

Technicals

EDU has been trading in an upward trend channel since it bottomed at the start of last year. The recent decline that followed the earnings report was held higher by the lower bound of this channel and while the trend channel remains in play, the technical outlook remains bullish. In the past week, the stock rallied above, $131 which was important resistance late last month. In the process, it’s made a sequence of higher highs and higher lows from the January low which supports the view that the stock has resumed within its broader uptrend.

EDU Chart February 2020 vertical put spread

EDU Chart February 2020

If you agree there’s further upside ahead for EDU, consider this trade which is a bet that the stock will continue to advance over the next six weeks, or at least a little bit.

Buy To Open EDU 20MAR20 130 Puts (EDU200320P130)
Sell To Open EDU 20MAR20 135 Puts (EDU200320P135) for a credit of $2.18 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when EDU was trading near $13.50.  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 $1.30 per spread.  Each contract would then yield $216.70 and your broker would charge a $500 maintenance fee, making your investment $283.30 ($500 – $216.70).  If EDU closes at any price above $135 on March 20, both options would expire worthless, and your return on the spread would be 76% (750% annualized).

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

IBD Underlying Updates February 9, 2020

IBD Underlying Updates February 9, 2020

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.

Happy trading,

Terry

ServiceNow (NOW) Stock Breaks Out On Earnings Beat

Monday, February 3rd, 2020

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.

ServiceNow stock advanced sharply higher in the past week after earnings came in better than expected. Here is what two analysts have to say about the recent earnings report – Service Now’s (NOW) Q4 Earnings Beat, Revenues Rise Y/Y and ServiceNow (NYSE:NOW) PT Raised to at Jefferies Financial Group.

Technicals

The earnings report in the past week has triggered a technical breakout in NOW which trades at all-time highs. The technical charts suggest the upward momentum will continue while the stock holds above the breakout point at $319. The upper bound of a rising trend channel is within proximity and this might trigger a near-term consolidation while an upward break of it would be indicative of rising upward momentum.

NOW Chart February 2020 upward momentum

NOW Chart February 2020

If you agree there’s further upside ahead for NOW, consider this trade which is a bet that the stock will continue to advance over the next six weeks, or at least not decline very much.

Buy To Open NOW 13MAR20 330 Puts (NOW200213P330)
Sell To Open NOW 13MAR20 335 Puts (NOW200213P335) for a credit of $1.89 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when NOW was trading near $338.  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 $1.30 per spread.  Each contract would then yield $187.70 and your broker would charge a $500 maintenance fee, making your investment $312.30 ($500 – $187.70).  If NOW closes at any price above $335 on March 13, both options would expire worthless, and your return on the spread would be 60% (562% annualized).

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

IBD Underlying Updates February 2, 2020

IBD Underlying Updates February 2, 2020

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.

Happy trading,

Terry

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Success Stories

I have been trading the equity markets with many different strategies for over 40 years. Terry Allen's strategies have been the most consistent money makers for me. I used them during the 2008 melt-down, to earn over 50% annualized return, while all my neighbors were crying about their losses.

~ John Collins