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Get INTU This Trade

Tuesday, August 31st, 2021

Software developer (QuickBooks, TurboTax) Intuit (INTU) reported earnings on Aug. 24 that handily beat estimates on all fronts. Earnings came in at $1.97 per share, topping the analyst forecast by 24%, while quarterly revenue of $2.56 billion beat the estimate by 10%. The company also raised its quarterly and annual revenue and earnings guidance above expectations. To top it off, INTU raised its dividend and approved a new $2 billion repurchase authorization.

The Street clearly loved the report, as the stock was hit with several large target price increases (one raised the price 27%). The average new target price after these raises was around the $640 mark, which is 13% above INTU’s closing price on Friday.

The stock price took the news and target increases in stride, though, with no change on Thursday after the report. On Friday, the stock resumed its huge rally with a 2.4% gain. INTU is up nearly 50% in 2021, with most of that gain coming in the past 3-1/2 months. The shares have been riding along their 20-day moving average, a trendline that has not allowed one daily close below it since mid-May. The 20-day is currently at 541 but should cross above the 550 level in less than two weeks at its current pace. This is also the site of the short put strike of our credit spread.

If you agree that INTU will continue its rally along the 20-day moving average, consider the following trade that relies on the stock remaining above 550 through expiration in seven weeks.

Buy to Open INTU 15Oct 540 put (INTU211015P540)
Sell to Open INTU 15Oct 550 put (INTU211015P550) for a credit of $2.80 (selling a vertical)

This credit is $0.05 less than the mid-point of the option spread when INTU was trading at $566. Unless the stock rallies quickly from here, you should be able to get close to this amount.

Your commission on this trade will be only $1.30 per spread.  Each spread would then yield $278.70. This trade reduces your buying power by $1,000 and makes your net investment $721.30 ($1000 – $278.70).  If INTU closes above $550 on October 15, both options will expire worthless and your return on the spread would be 39% ($278.70 / $721.30).

Clean Up with Cintas (CTAS)

Sunday, July 18th, 2021

Cintas (CTAS) may not be in an exciting business – the company provides uniforms, cleaning and restroom supplies, first aid supplies and fire extinguishers – but its recent earnings report was anything but boring. The company easily beat profit forecasts and slightly beat sales projections. Even the low end of the company’s projected EPS range for fiscal 2022 is well above the analyst estimate. The only smudge on the report was the projected sales estimate, which came in below forecasts. Nevertheless, the report was greeted with a slew of target price increases that ranged as high as $450 (the stock closed on Friday at $386).

The initial reaction to the earnings was a 2.6% drop on Thursday. But the stock popped 4.6% on Friday, resuming its recent breakout above a trading range that has dominated in 2021. More importantly, the shares found strong support at the 365 level (red line in chart), which has defined the top of the trading range going back to November. CTAS trades only monthly options in 10-point increments, so we’re using the 380 short strike (green line) for a put credit spread. This is just above the stock’s 20-day moving average (blue line).

CTAS Chart

If you agree that CTAS will stay above its 20-day moving average, consider the following trade that relies on the stock remaining above 380 through expiration in five weeks.

Buy to Open CTAS 20Aug 370 put (CTAS210820P370)
Sell to Open CTAS 20Aug 380 put (CTAS210820P380) for a credit of $3.15 (selling a vertical)

This credit is $0.05 less than the mid-point of the option spread when CTAS was trading at $386. Unless the stock rallies quickly from here, you should be able to get close to this amount.

Your commission on this trade will be only $1.30 per spread.  Each spread would then yield $313.70. This trade reduces your buying power by $1,000 and makes your net investment $686.30 ($1,000 – $313.70).  If CTAS closes above $380 on August 20, both options will expire worthless and your return on the spread would be 46% ($313.70 / $686.30).

Ride the Rails with IYT

Monday, June 7th, 2021


The iShares Transportation Average ETF (IYT) is a price-weighted ETF dominated by rail, trucking and freight companies. The top 10 holdings comprise 77% of the ETF, with nearly half of that coming from four railroad names – Kansas City Southern, Norfolk Southern, Union Pacific and CSX. Other familiar names in the top 10 include FedEx and UPS.

The transportation sector has been hot since the March 2020 bottom, as shown by IYT’s gain of more than 130%. The ETF hit a record high a month ago but has retreated 4% in the past month with rising fuel prices (crude oil hit a two-year high this week) taking a bite out of profits. The overall uptrend is intact, however, guided by IYT’s 50-day moving average. The trendline’s steady increase has hardly changed during IYT’s recent sideways price action. More importantly, IYT has not closed a single day below the 50-day since February 3. But now the trendline is being tested, as IYT sits just one percent above this support.

We’re banking on this support holding and for the long rally to continue. Our credit spread’s short strike is below the 50-day, so a hold at this trendline would keep our spread out of the money.

If you agree that IYT will stay above its 50-day moving average, consider the following trade that relies on the stock remaining above 265 through expiration in six weeks.

Buy to Open IYT 16Jul 260 put (IYT210716P260)
Sell to Open IYT 16Jul 265 put (IYT210716P265) for a credit of $1.45 (selling a vertical)

This credit is $0.03 less than the mid-point of the option spread when IYT was trading above $270. Unless the ETF rallies quickly from here, you should be able to get close to this amount.

Your commission on this trade will be only $1.30 per spread.  Each spread would then yield $143.70. This trade reduces your buying power by $500 and makes your net investment $356.3 ($500 – $143.70).  If IYT closes above $265 on July 16, both options will expire worthless and your return on the spread would be 40% ($143.70 / $356.30).

Comcast (CMCSA) Receives An Aggressive Price Upgrade

Tuesday, May 28th, 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.

Terry

Comcast (CMCSA) Receives An Aggressive Price Upgrade

TD Securities recently upgraded their price targets for CMCSA to $57.  That’s more than 30% upside from current levels.  They weren’t the only ones to raise targets, full details can be found here.  Also have a look at this Zack’s article that makes a case for why timing is right to get into Comcast stock – Here is Why Growth Investors Should Buy Comcast Now.

From a technical perspective, CMCSA has been consolidating between two horizontal levels for about a month.  Sideways consolidations often occur following a lengthy uptrend as seen in this stock.  Downside support is found at $42.17 followed by the 50-day moving average which falls just below the level, currently near $41.71.  An upside break above $44 resistance would signal that the uptrend has resumed.

If you agree there’s further upside ahead for CMCSA, 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 CMCSA 5JUL19 40 Puts (CMCSA19075P40)
Sell To Open CMCSA 5JUL19 42.05 Puts (CMCSA19075P42.05) for a credit of $0.72 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when CMCSA was trading near $43.  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 $2.50 per spread (the rate charged by thinkorswim for Terry’s Tips’ subscribers).  Each contract would then yield $69.50 and your broker would charge a $205 maintenance fee, making your investment $135.50 ($205 – $69.50).  If CMCSA closes at any price above $42.05 on July 5, both options would expire worthless, and your return on the spread would be 51% (477% annualized).

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

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

Free Video Thank You Page – Why Not To Buy Puts or Calls

Thursday, April 4th, 2019

Thank  you for  requesting the free video entitled:

Why Not To Buy Puts And Calls

Enjoy and please email terry@terrystips.com with any questions!

Happy Trading,

Terry

 

Will Regeneron Pharmaceuticals Continue to Outperform Its Sector?

Sunday, February 24th, 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.  The actual Terry’s Tips portfolio that trades these ideas of the week has gained 148% in the first two months of 2019.  Of course, past results are not always duplicated in the future, but we like our chances here.

Terry

Will Regeneron Pharmaceuticals Continue to Outperform Its Sector?

Regeneron Pharmaceuticals (REGN) has been a long-term performer, see what these two analysts have to say about the company moving forward – Why I Like Regeneron Pharmaceuticals, Inc. and Is Regeneron Pharmaceuticals Stock Outpacing Its Medical Peers This Year?

The main technical appeal to REGN is its ability to hold above a horizontal level near $410 that held the stock lower late last year.  The level is now seen as strong support and recent price action seems to support that as a dip following their recent earnings report was bought up near the level.  There is some confluence at the price point as the 50-Monthly moving average is slightly above it.  The stock trades within a rising trend channel that originates from a low in May last year and the upper bound of the channel currently falls around $450-$460.

REGN Chart February 2019

REGN Chart February 2019

*source Tradingview.com

If you agree there’s further upside ahead for REGN, 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 REGN 29MAR19 417.5 Puts (REGN190329P417.5)
Sell To Open REGN 29MAR19 420 Puts (REGN190329P420) for a credit of $1.18 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when REGN was trading near $423.  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 $2.50 per spread (the rate charged by thinkorswim for Terry’s Tips’ subscribers).  Each contract would then yield $115.50 and your broker would charge a $250 maintenance fee, making your investment $134.50 ($250 – $115.50).  If REGN closes at any price above $420 on March 29, both options would expire worthless, and your return on the spread would be 86% (981% annualized).

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

IBD Underlying Updates February 21, 2019

IBD Underlying Updates February 21, 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

An Interesting Short-Term Play on Aetna (AET)

Wednesday, January 11th, 2017

We are always on the lookout for unusual option prices that might indicate a better-than-usual investment opportunity.  I would like to share one of those recent opportunities with you, one I personally acted on and passed on to Terry’s Tips  subscribers last Saturday.  It involves the venerable insurance company, Aetna.

Terry

 An Interesting Short-Term Play on Aetna (AET)

 This week, we are looking at Aetna (AET), a health care benefits company.  If you check out its chart, you can see that it does not historically make big moves in either direction, especially down:

AET Aetna Chart January 2017

AET Aetna Chart January 2017

In spite of this lack of volatility, for some reason, IV of the short-term options is extremely high, 44 for the series that expires in 10 days.  The company is trying to purchase Humana, and the justice department may have some objections, and there seems to be concerns how insurance companies will fare under the Trump administration, two factors which may help explain the high IV. Neither of the possible adverse outcomes are likely to occur in the next 10 days, at least in my opinion.

AET closed today (Monday) at $122.67.  I think it is highly unlikely that it will fall below $118 in 10 days when the 20Jan17 options expire.  Here is a trade I made today:

Buy to Open 10 AET 20Jan17 113 puts (AET170117P113)

Sell to Open 10 AET 20Jan17 118 puts (AET170117P118) for a credit of $.98  (selling a vertical)

I received $980 less $25 commissions, or $955.  The maintenance requirement, and my maximum theoretical loss in $5000 less the $955 I received, or $4045.  If AET closes at any price higher than $118 in 10 days, both these puts will expire worthless and I will get to keep my $955.  That works out to be a 23% return on my investment, not so bad considering that it is just for 10 days.

In the event that AET is trading below my downside break-even point ($117.06), I will be facing a loss.  If that is the situation, I will roll out this same strike-price spread to a further-out option series, and I should be able to do it at a credit.  That is how I would propose to postpone a possible loss and give the stock some time to return to over $118 where the puts will both expire worthless and give me a greater return than 23% (depending on the amount of the credit I receive).  Of course, I will have to wait longer than 10 days for that profit to come, but I can be a little patient.

Update on Google Options Purchase

Saturday, October 26th, 2013

Two weeks ago I told you about an options investment I made in Google.  This investment was made just before Google was scheduled to announce their earnings for the latest quarter.  For that reason, the October options had skyrocketed in value as they usually do just prior to an announcement, especially the options that will expire shortly after the announcement is made.Google announced earnings after the close on Thursday, October 17th, and the company exceeded expectations by a large margin.  The stock rose over $120 on Friday.

I had made my investment in hopes that it would at least stay flat.  If it did, I would stand to gain about 8% on my investment in only two weeks.  Let’s see how these options did when the stock made such a huge upward swing.

Terry
 
Update on Google Options Purchase:  My original goal was to use call options as a proxy for owning 100 shares of stock.  I discovered that I could buy the equivalent of 100 shares and shell out only $15,500 rather than the $87,000 it would take to buy 100 shares.

As I reported two weeks ago, I bought 2 GOOG 800 calls that expire on the third Friday of January 2014, paying $8600 for each call, or $17,200 in total.

The reason that I bought such deep in-the-money calls is that most of the value was in the intrinsic value of the option rather than the time premium.  Deep in-the-money options don’t carry such a high Implied Volatility as at-the-money options, especially those which expire shortly after an earnings announcement.  That means the calls that I bought were “cheaper” than the October 2013 calls I intended to sell (using my January 2014 800 calls as security).

Since I owned 2 call options at a low strike price I was entitled to use them as collateral to sell someone else the opportunity to buy shares of GOOG at a higher price.  I sold one Oct-13 890 call, collecting $13.50 ($1350) and one Oct-13 935 for $3.50 ($350). 

These option positions gave me the equivalent of 100 shares of GOOG at a cost of $17,200 less the $1700 I collected from selling the two calls, or $15,500.

This was the risk profile graph for my positions that I showed two weeks ago:

Google Risk Profile Graph

Google Risk Profile Graph

Unfortunately, the graph did not extend up to the $1000+ level that the stock moved to, so I will share how I closed out the positions.  When the stock was trading just about $1000 on Friday, I sold one diagonal spread (buying to close the October 2013 890 call and selling to close the January 800 call) and collected $92 ($9200).  That spread had cost me $7250 to buy ($8600 – $1350) so my gain was $1950.  (All these numbers have been rounded to the nearest $50.)

The second diagonal spread (buying to close the October 2013 935 call and selling to close the January 800 call) was sold for $137 ($13,700).  This spread had cost me $8250 ($8600 – $350) so my gain was $5450, giving me a total gain of $7400 on an investment of $15,500, or 47%.

The stock had gone up by 13% and my option portfolio had gained 47%.  How can anyone not love options?

My total commissions on these trades amounted to $10 at the commission rate that thinkorswim offers to Terry’s Tips subscribers.

This is just one example of how I use options to buy the equivalent number of shares of a company I like, and how I can collect a “dividend” each month even if the stock doesn’t actually pay a dividend.  In this case, the stock skyrocketed, and my returns were considerably greater.

Update on Herbalife Spread Positions

Thursday, January 10th, 2013

On Monday I submitted an article to Seeking Alpha -, Why Herbalife Should Move Higher From Here

I recommended buying calendar spreads at one strike below the current price of Herbalife (HLF) and two strikes above the current price so that you didn’t much care which way the stock moved as long as it didn’t go absolutely crazy on the downside.

In a Terry’s Tips portfolio, we bought Feb-13 – Jan2-13 calendar spreads at the 35, 37.5, 40 and 42.5 strikes when the stock was trading at $28.57.  On Tuesday and Wednesday, the stock moved up by about $2.50 and we added another calendar at the 45 strike.

The company has made a public announcement today refuting the claims of Bill Ackman, and the stock has been gyrating in both directions, although not by huge margins.  As I write on my lunch break on Thursday, the stock is trading at $40, down about a dollar for the day.

Our little portfolio has gained 20% after commissions since Monday, and the risk profile graph shows that we should pick up even more tomorrow as long as the stock doesn’t fll by more than another $2 by the close tomorrow:

I am a little tempted to close out the positions and take a 20% gain for the week, but the break-even range seems large enough that I will wait another day and  hope for another 10% or so.

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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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