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MGM Growth Properties (MGP) Dips Lower, Is It A Buy?

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

MGM Growth Properties (MGP) Dips Lower, Is It A Buy?

Several analysts think MGM Growth Properties has a lot more upside, here are two of them – A Careful Analysis of MGM Growth Properties and MGM Growth Properties On The Radar of Prospective Investors.

MGP is seen pulling back after testing resistance from a trendline drawn by connecting a high from late 2017 with the high from last year.  Momentum indicators show no reason to believe a triple top is playing out and candlestick patterns on the higher time frames point to strength in recent upward momentum.  The stock is currently testing its 200-day moving average which could be a spot where bulls might look to reenter.

MGP Chart March 2019

MGP Chart March 2019

*source Tradingview.com

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

Buy To Open MGP 18APR19 25 Puts (MGP190418P25)
Sell To Open MGP 18APR19 30 Puts (MGP190418P30) for a credit of $1.18 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when MGP was trading near $30.  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 $500 maintenance fee, making your investment $384.50 ($500 – $115.50).  If MGP closes at any price above $30 on April 18, both options would expire worthless, and your return on the spread would be 30% (281% annualized).

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

IBD Underlying Updates March 7, 2019

IBD Underlying Updates March 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

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