from the desk of Dr. Terry F Allen

Skip navigation

Member Login  |  Contact Us  |  Sign Up

802-877-8330

Archive for the ‘Terry’s Tips Portfolios’ 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

Ten Things You May Not Have Known About Costco

Monday, February 24th, 2020

  1. Costco is the world’s largest retailer of choice and prime beef, organic foods, rotisserie chicken, and wine. Costco is the second largest auto seller in the US, just behind AutoNation. The #1 selling product is toilet paper – over a billion rolls a year.
  2. Costco rejects conventional marketing tools. It doesn’t advertise, doesn’t tell you where to find things, has a limited array of products, and members must pay up front to shop there. Costco has no public relations staff. This is definitely an anomaly – no other big public company operates without having a public relations department.
  3. The Costco Connectionis a magazine sent free to members of Costco. Its subscribers have an average household income of $156,000 a year. The magazine is the largest-circulation print monthly in the United States.
  4. Two types of things that Costco sells: Triggers and Treasures

A typical Costco warehouse store stocks only 4,000 types of items (in contrast, the average supermarket sells 40,000 types items. Wal-Mart stores, on the other hand, stock about 125,000 types of products).

Three-quarters of Costco’s products are what it calls “triggers” – staples such as paper towel, detergents, and cereals. The remaining one-quarter are “treasures” – items that make shopping an adventure. These items change frequently: one day you can find a luxury watch offered at a ridiculous discount and the next day, it’s gone. This creates a sense of urgency and the thrill of shopping that hooked people on what’s been called the “Costco Craze” or the “Costco Effect.”

Bonus fact: Items that are “treasures” rather than always-available staples are identified by an asterisk (*) after the price on the display tag over the product.  If there is an asterisk on an item you like, you better stock up on it because when what you see has been sold, it will not be re-stocked. Sometimes they repeat “treasure” offerings, but there may be a multi-month delay before it comes back.

  1. Costco is the largest retailer of wine in the world.

Each year, it sells almost $4 billion in alcohol, with wine making up almost half of that number. Wine prices are 10% – 20% less than other wine stores, sometimes more.  Look for wine prices that end in something other than $.99 – that means it is a markdown from the regular price or Costco negotiated a special price with its supplier.  Kirkland label wines may not be what you want to place on your fancy dinner table, but put it in a decanter and wait for the raves.  My favorite white wine is the Kirkland Sonoma County Chardonnay ($6.94) which was preferred over La Crema Sonoma Coast Chardonnay ($23 at Whole Foods, $18 at Costco) in a blind test I conducted on some friends who considered themselves to be knowledgeable wine imbibers.

  1. Costco buys up half of the world’s supply of cashews

People sure love cashews. Costco sells $300,000 worth of them every week. If you noticed, Costco’s cashew containers are square – not round – in order to maximize space on pallets.

When they switched to square containers, they reduced some 400 truck trips in shipping the product to its 600+ stores every year.

  1. Costco offers a foot-long all-beef $1.50 hot dog (with condiments, sauerkraut and a free unlimited soft drink). The price has remained the same since 1985. Costco sells more than 100 million hot dogs every year. To be able to continue to sell at that price, in 2008 Costco started making their own hot dogs in a facility in California’s Central Valley.
  2. When that clerk checks your sales receipt and looks at your full cart as you exit the store, what is he/she looking for? You might think that they are making sure that everything in your cart was paid for. You would be wrong.  They are checking to make sure that the cashier did not inadvertently charge you more than once for the same item, or enter an incorrect number on multiple-item orders.
  3. Costco makes virtually no profit on the stuff it sells

Okay, this requires a bit of explanation: Costco typically marks up its goods a maximum of 14% over its cost (most items have an 8% to 10% markup – Kirkland Signature brand has a 15% markup). After accounting for expenses such as real estate costs and wages, Costco just about breaks even on those goods.

Eighty percent of the company’s gross profit actually comes from the membership fees (between $55 to $110) from its 64 million members. That’s nothing to sneeze at: Costco’s annual profit is roughly $1.5 billion. Nearly 90% of its customers renew their membership every year.

There’s another benefit to requiring people to become members in order to shop: a customer who has to provide his details in the membership registration form is less likely to write bad checks or steal. Costco suffers only one-tenth the level of those two types of losses as compared to the average supermarket.

  1. Costco is amazingly generous to its employees

On average, Costco pays its workers about $20.89 an hour (in contrast to Wal-Mart which pays its full-time employees $12.67). More than 80% of Costco employees have company-sponsored health insurance. About 90% of its employees have retirement plans.

As a result, employees rarely leave. The turnover rate of employees who have been there over a year is 5%. Turnover rate of Costco executives is even lower at 1%. That way, the company saves quite a bit in having to train new employees and its rate of theft by employee is extremely low.

Costco generates almost double the operating profit per employee than does rival Sam’s Club, which pays its employees much lower wages.

Costco also loves to promote from within – in fact, 70% of its warehouse managers started out as cart pushers and cashiers.

Bonus Fact I: Kirkland Signature is named after the city of Kirkland, Washington. It is the company’s private label, and makes up about 15% of the store’s product line, and almost a third of its sales.

Bonus Fact II: The weirdest thing ever sold on Costco? Caskets.

Bonus Fact III: Next time you buy a new car, let the dealer know you have a Costco card.  You might just be eligible to receive a free $500 gas credit or other unexpected savings.

Bonus Fact IV: Costco went public on December 5, 1985 at $10.00 per share (before stock splits). Adjusting for stock splits, the initial price per share was approximately $1.67. If you had invested $5500 at that time, you would be a millionaire today.

Final Thought: Even more than enjoying everything about shopping at Costco, I love to trade options on the stock.  At the beginning of 2019, I set up a $20,000 portfolio to trade options on COST.  Starting at the beginning of March, every Sunday, I made a short video of my COST positions and discussed why I chose those particular options and what I might do with the portfolio in the coming week.  I made 26 of these short videos and have spliced them together into 4 more manageable modules which I plan to offer as part of a course on how to carry out a conservative options portfolio using COST options.

By the third week of October, this portfolio had made a gain of $80,887 for the year.  That works out to over 400%.  Of course, COST rose about 40% during that time, but my system would have made just as much if it had remained absolutely flat instead of steadily moving higher.

I took out over $40,000 for spending and opening other option portfolios, but I still had over $50,000 worth of COST options at work in this portfolio when I stopped making the weekly videos (I stopped because my wife and I took a 3-week walking vacation along the Jurassic Coast in Dorset, England).

Oh, how I love Costco, and stock options.

Happy trading,

Terry Allen

P.S. At the beginning of 2020, I used the same strategy that I have developed over the past 40 years on Costco (COST) and Microsoft (MSFT) options.  I started out the year with $108,000 and 7 weeks later, I had more than doubled the value of the account.  I am making a video showing the actual positions I started with, the strategy I used, and how to carry it out (the all-important little details).  By signing up for the Terry’s Tips free newsletter, you will receive full details as soon as I finish the video.

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

L3 Harris Technologies (LHX) Breaks to Record Highs, What’s Next?

Monday, January 20th, 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.

LHX has received positive media coverage as of late. The IBD recently wrote an article naming the company its stock of the day and it has since rallied to trigger IBD’s buy point. Meanwhile, Zack’s has included the stock as part of their list of 4 defense stocks they think will do really well in 2020.

Technicals

Two notable technical developments are seen in the daily chart for L3 Harris Technologies. First, the stock has broken higher from a bullish flag pattern that had encompassed prices from September until late January. The second technical development that offers a bullish signal is the break above $215 resistance. This level is considered significant as it held the stock lower on multiple attempts in August and September. Further, the stock trades at an all-time high after breaking above the horizontal level.

LHX Chart January 2020 vertical options spread

LHX Chart January 2020

If you agree there’s further upside ahead for LHX, 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 LHX 21FEB20 210 Puts (LHX200221P210)
Sell To Open LHX 21FEB20 220 Puts (LHX200221P220) for a credit of $3.78 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when LHX 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 $376.70 and your broker would charge a $1000 maintenance fee, making your investment $623.30 ($1000 – $376.70).  If LHX closes at any price above $220 on February 21, both options would expire worthless, and your return on the spread would be 60% (684% annualized).

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

IBD Underlying Updates January 18, 2020

IBD Underlying Updates January 18, 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

Salesforce.com (CRM) Shows Renewed Upward Momentum

Monday, January 6th, 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.

Salesforce.com is an outperformer and its stock is poised for an upside breakout. Take a look at the following two articles for details – Has salesforce.com (CRM) Outpaced Other Computer and Technology Stocks This Year? and Salesforce.com Is Ready for an Upside Breakout.

Technicals

CRM has broken higher from a large bullish flag pattern that was six months in the making. The stock broke higher in November, and in the past week, it posted a series of higher highs and higher lows above the flag pattern to confirm the trend reversal. The stock is holding within a bullish trend channel and strong support is found near the lower bound of the channel as the 20-day moving average resides near it to create a confluence.

Salesforce (CRM) Chart January 2020 showing upward momentum

CRM Chart January 2020

If you agree there’s further upside ahead for CRM, 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 CRM 07FEB20 162.5 Puts (CRM200207P162.5)
Sell To Open CRM 07FEB20 165 Puts (CRM200207P165) for a credit of $0.92 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when CRM was trading near $166.  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 CRM closes at any price above $165 on February 7, 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 January 4, 2020

IBD Underlying Updates January 4, 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) Eyes All-Time Highs

Monday, December 30th, 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.

ServiceNow (NOW) is up 35% from its low two months ago and several analysts expect the stock to continue higher. Here are two of them – Is ServiceNow (NOW) Outperforming Other Computer and Technology Stocks This Year? and 3 Tech Stocks for Growth Investors to Buy for 2020.

Technicals

From a technical perspective, NOW recently scaled above a major horizontal level that resides near $275. This level first came into play in late April and has acted as resistance on multiple occasions. The bullish break signals strength. The next area of interest will tend to be the psychological $300 price point which held the stock lower earlier this year.

ServiceNow hits all-time highs December 2019

NOW Chart December 2019

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 four weeks, or at least not decline very much.

Buy To Open NOW 24JAN20 282.5 Puts (NOW200124P282.5)
Sell To Open NOW 24JAN20 285 Puts (NOW200124P285) for a credit of $1.03 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when NOW was trading near $287.  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 $101.70 and your broker would charge a $250 maintenance fee, making your investment $148.30 ($250 – $101.70).  If NOW closes at any price above $285 on January 24, both options would expire worthless, and your return on the spread would be 69% (1007% annualized).

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

IBD Underlying Updates December 28, 2019

IBD Underlying Updates December 28, 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

Making 36%

Making 36% — A Duffer's Guide to Breaking Par in the Market Every Year in Good Years and Bad

This book may not improve your golf game, but it might change your financial situation so that you will have more time for the greens and fairways (and sometimes the woods).

Learn why Dr. Allen believes that the 10K Strategy is less risky than owning stocks or mutual funds, and why it is especially appropriate for your IRA.

Order Now

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