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Archive for the ‘Last Minute Strategy’ Category

Buy the Dip in Microsoft (MSFT)

Monday, February 24th, 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.

Microsoft’s stock price dipped in the past week and these two following articles point out several reasons why investors might want to take advantage of the dip – Microsoft (MSFT): Strong Industry, Solid Earnings Estimate Revisions, and 3 Reasons Microsoft Has More Growth Ahead of It.

Technicals

While MSFT corrected lower last week, downward momentum is lacking when compared to prior weeks. The stock is currently testing the 20-day moving average which is an indicator MSFT has not traded below on a sustained basis in at least six months. Further support is seen at $174 which is a horizontal level near that acted as resistance last month. The strongest appeal to this stock is that the upward momentum has been increasing since it broke out in late October, and this upward momentum has not been negated by the recent dip. It would take a sustained drop below $174 to alter the near-term outlook for MSFT.

MSFT Chart February 2020 buy in dip

MSFT Chart February 2020

If you agree there’s further upside ahead for MSFT, 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 MSFT 27MAR20 175 Puts (MSFT200327P175)
Sell To Open MSFT 27MAR20 177.5 Puts (MSFT200327P177.5) for a credit of $0.98 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when MSFT was trading near $179.  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 $96.70 and your broker would charge a $250 maintenance fee, making your investment $153.30 ($250 – $96.70).  If MSFT closes at any price above $177.5 on March 27, both options would expire worthless, and your return on the spread would be 63% (719% annualized).

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

IBD Underlying Updates February 22, 2020

IBD Underlying Updates February 22, 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

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

Netflix (NFLX) Shows Renewed Upward Momentum

Monday, January 27th, 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.

Netflix, a recent addition to the IBD Top 50 list, has shown strong bullish momentum despite a brief dip following its recent earnings report. The following article highlights some of the positive takeaways from the earnings report – 6 Critical Takeaways Learned From Netflix’s Q4 Earnings Report. Also, take a look at this recent CNBC article which includes details of a price target upgrade and a video interview with Mark Cuban – Netflix stock climbed more than 7%, its best day of trading for the year.

Technicals

The strongest signal from NFLX comes from a bullish breach above $336 which was an important price point in 2019. But more important is the manner in which the stock did so. There was an initial dip lower following the earnings report, which might have spooked investors, that followed with a momentum-driven rally. This type of price action often occurs when the market participants are searching for liquidity to establish large bullish positions. It holds especially true during earnings releases as trading volumes tend to be elevated. Further, the stock once again trades comfortably above its 100-week moving average which has been an important indicator in the past. The next major level of interest to the upside is $374 while $336 is expected to support any near-term dips.

NFLX Chart January 2020

NFLX Chart January 2020

If you agree there’s further upside ahead for NFLX, 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 NFLX 28FEB20 350 Puts (NFLX200228P350)
Sell To Open NFLX 28FEB20 352.5 Puts (NFLX200228P352.5) for a credit of $1.13 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when NFLX was trading near $353.  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 $111.70 and your broker would charge a $250 maintenance fee, making your investment $138.30 ($250 – $111.70).  If NFLX closes at any price above $352.50 on February 28, both options would expire worthless, and your return on the spread would be 81% (924% annualized).

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

IBD Underlying Updates January 25, 2020

IBD Underlying Updates January 25, 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

Copart (CPRT) Eyes $100 Price Point

Monday, January 13th, 2020

Copart is a momentum stock that has caught the eyes of many analysts, here are two of them – Why Copart (CPRT) Stock Might be a Great Pick and Why Do 123 A+ Funds Have A Stake In This Breakout IBD 50 Stock?

Technicals

The main appeal to CPRT from a technical perspective is its upward momentum on the larger time frames. Over the last year, the stock has only posted one monthly loss and that loss was a small one compared to typical monthly ranges. Pullbacks have been shallow and buyers are quick to pick this stock up on dips. A horizontal level is in play at $91 that acted as resistance from mid-November until the break higher two weeks ago. The upward break suggests bullish a continuation and the psychological $100 price point may act as a magnet for this stock.

CPRT Chart January 2020

CPRT Chart January 2020

If you agree there’s further upside ahead for CPRT, 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 CPRT 21FEB20 90 Puts (CPRT200221P90)
Sell To Open CPRT 21FEB20 95 Puts (CPRT200221P95) for a credit of $1.63 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when CPRT was trading near $95.  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 $161.70 and your broker would charge a $500 maintenance fee, making your investment $338.30 ($500 – $161.70).  If CPRT closes at any price above $95 on February 21, both options would expire worthless, and your return on the spread would be 48% (449% annualized).

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

IBD Underlying Updates January 11, 2020

IBD Underlying Updates January 11, 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

Green Lights are Flashing for Merck & Co (MRK)

Monday, December 16th, 2019

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.

Merck has been in the spotlight because of a recent acquisition and as several biotech’s have produced outsized gains as of late. The following two articles discuss the acquisition and how MRK is a better option compared to one of its peers – Merck: Adding To The Pipeline and Better Buy: Eli Lilly vs. Merck.

Technicals

The recent technical development in MRK is a significant one. The stock has broken above a horizontal resistance level at $87 that had held it lower on three notable attempts since the summer. Such a consolidation, followed by a break,, is often a precursor to a much larger move to come. With the stock still trading relatively close to its breakout point there is good value as technical traders usually look to defend breakout points if they were to be retested.

MRK Chart December 2019 broken resistence level

MRK Chart December 2019

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

Buy To Open MRK 17JAN20 87.5 Puts (MRK200117P87.5)
Sell To Open MRK 17JAN20 90 Puts (MRK200117P90) for a credit of $0.92 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when MRK was trading near $89.  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 $90.70 and your broker would charge a $250 maintenance fee, making your investment $159.30 ($250 – $90.70).  If MRK closes at any price above $90 on January 17, both options would expire worthless, and your return on the spread would be 57% (650% annualized).

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

IBD Underlying Updates December 14, 2019 via Terry's Tips

IBD Underlying Updates December 14, 2019

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

Jazz Pharmaceuticals (JAZZ) – A Pharma Stock on a Tear

Monday, December 9th, 2019

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.

Recent media coverage suggests Jazz Pharmaceuticals is a stock that investors certainly want to own. Check out what these two articles have to say about it – Hedge Funds Got Back Into Jazz Pharmaceuticals plc and  Two stocks I’d tuck away forever: Jazz Pharmaceuticals plc (JAZZ), HollyFrontier Corporation (HFC).

Technicals

JAZZ is showing a textbook technical breakout. The stock traded between roughly $115 and $145 for most of the year before finally breaking higher in November. The $145 price point offered major resistance in April and July and is now seen as support. In fact, a dip toward the level in the past week was promptly bought up, offering some confirmation that buyers do view the level as support. Further, the upward momentum from the October low is unusually strong which also confirms the outlook of a technical breakout.

JAZZ Pharmaceuticals Chart December 2019

JAZZ Chart December 2019

If you agree there’s further upside ahead for JAZZ, 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 JAZZ 17JAN20 145 Puts (JAZZ200117P145)
Sell To Open JAZZ 17JAN20 150 Puts (JAZZ200117P150) for a credit of $2.18 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when JAZZ was trading near $149.  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 JAZZ closes at any price above $150 on January 17, both options would expire worthless, and your return on the spread would be 76% (711% annualized).

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

IBD Underlying Updates December 7, 2019

IBD Underlying Updates December 7, 2019

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

LRCX Diagonal Condor Earnings Play

Thursday, April 5th, 2018

This is a possible option play using the Diagonal Condor Earnings Strategy that we recently sent you details about.

Lam Research (LRCX) announces earnings after the close on Tuesday, April 17, 2018. The stock has been on a downtrend for the past several weeks, a good indication that expectations are seriously lowered.  We have seen many instances when lowered expectations have resulted in a higher post-announcement date regardless of how well or poorly the actual results were compared to estimates. If you agree with this prognosis, you might consider making these trades (when the stock is trading about $196):

Buy To Open # LRCX 18May18 180 puts (LRCX180518P180)
Sell To Open # LRCX 20Apr18 195 puts (LRCX180420P195) for a credit of $2.20  (buying a diagonal)

Buy To Open # LRCX 18May18 220 calls (LRCX180518C220)
Sell Open # LRCX 20Apr18 205 calls (LRCX180420C205) for a debit of $.30  (buying a diagonal)

This is the risk profile graph for the options which expire on Friday, April 20, 2018 at a time when LRCX was trading about $196 and assuming the implied volatility of the May 25 options will fall from their current 43 to 38 after the earnings announcement on April 17th:

LRCX Risk Profile Earnings Graph April 2018

LRCX Risk Profile Earnings Graph April 2018

The two spreads will involve an investment of about $1400 per pair of spreads.  The maintenance requirement is $1500 and there is a net credit of about $100 after commissions.  If the stock were to end up at any price between $195 and $205, the graph shows that a gain of about 50% on investment would come our way.

The break-even range extends from about a 5% drop to an 8% rise.  This is well within the 4.9% average fluctuation that LRCX has made over the past 8 quarterly announcements.

Since there is a net credit from selling the two spreads, one of the spreads essentially is guaranteed to make a profit.  If the stock were to end up at any price between $195 and $205, both April 20 short options would expire worthless and the May 18 options would still have significant residual value.

If the stock were to fluctuate so much that it ended up outside the $195 – $205 range, the expiring April 20 options could be rolled over to out-of-the-money options in the April 27 series, likely at a credit.  There would be 5 additional weeks where short-term premium might be collected so that the original spreads might ultimately prove to be profitable even though it did not work out as expected in the announcement week.

As with all investments, you should only make option trades with money that you can truly afford to lose.

Happy trading,

Terry

 

Trading Options Can be a Lifetime Learning Experience

Friday, April 7th, 2017

I have been trading options just about every day the market is open for about 40 years, including some time on the floor of the CBOE.  I have made large sums of money at times, and (sadly) have also lost money along the way.  But the amazing thing about my experience is that I continue to learn things even after all these years.

Today I would like to talk about trading options with an analogy.

Terry

Trading Options Can be a Lifetime Learning Experience

If the truth be known, investing in stocks is pretty much like playing checkers.  Any 12-year-old can do it.  You really don’t need much experience or understanding.  If you can read, you can buy stock (and probably do just about as well as anyone else because it’s basically a roulette wheel choice).  Most people reject that idea, of course.  Like the residents of Lake Wobegone, stock buyers believe that they are all above average – they can reliably pick the right ones just about every time.

Trading options is harder, and many people recognize that they probably aren’t above average in that arena.  Buying and selling options is more like playing chess.  It can be (and is, for anyone who is serious about it) a life-time learning experience.

You don’t see columns in the newspaper about interesting checker strategies, but you see a ton of pundits telling you why you should buy particular stocks.  People with little understanding or experience buy stocks every day, and most of their transactions involve buying from professionals with far more resources and brains. Most stock buyers never figure out that when they make their purchase, about 90% of the time, they are buying from professionals who are selling the stock to them rather than buying it at that price.

Option investing takes study and understanding and discipline that the purchase of stock does not require.  Every investor must decide for himself or herself if they are willing to make the time and study commitment necessary to be successful in option trading.  Most people are too lazy.

It is a whole lot easier to play a decent game of checkers than it is to play a decent game of chess.  But for some of us, options investing is a whole lot more challenging, and ultimately more rewarding.  For example, Facebook (FB) has had a great start for 2017.  It has gained 20.5% in the first ten weeks.  The Terry’s Tips option portfolio that trades FB options (calendar and diagonal spreads) has gained 105.7% over this same period, over 5 times as much.  With actual results like this, why wouldn’t any reasonable adult with enough cash to buy stock want to learn how to multiply his or her earnings by learning a little about the wonderful world of options?

Playing checkers (and buying stock) is boring.  Playing chess (and trading options) is far more challenging.  And rewarding, if you do it right.

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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.

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