from the desk of Dr. Terry F Allen

Skip navigation

Member Login  |  Contact Us  |  Sign Up

support@terrystips.com

Should you Buy the Dip in Zoom Video Communications (ZM)?

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.

Zoom’s stock price corrected lower in the past week on privacy and other concerns. The question at this point is whether investors will see value after a more than 20% drop from the high. The following article discusses the concerns investors are faced with and how the company CEO is addressing them –  Zoom says it topped 200 million daily participants in March as CEO addresses privacy concerns. Also take a look at this article which highlights why ZM is an attractive stock, particularly at this time – 4 Tech Stocks Boosted by Remote Schooling Sessions.

Technicals

A confluence of support held ZM higher in the past week. It consists of a horizontal level at $120, which was prior resistance in late February and early March, and a rising trendline that dates back to late January. While above this area, the stock has the potential to extend higher, at least towards the next level of interest which falls at $135.

ZM Chart April 2020 dip from COVID-19 overload

ZM Chart April 2020

If you agree there’s further upside ahead for ZM, 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 ZM 08MAY20 120 Puts (ZM200508P120)
Sell To Open ZM 08MAY20 125 Puts (ZM200508P125) for a credit of $2.68 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when ZM was trading near $128.  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 $266.70 and your broker would charge a $500 maintenance fee, making your investment $233.30 ($500 – $266.70).  If ZM closes at any price above $125 on May 08, both options would expire worthless, and your return on the spread would be 114% (1300% annualized).

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

IBD Underlying Updates April 4, 2020

IBD Underlying Updates April 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

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

Member Login  |   Programs and Pricing  |  Testimonials  |  About Us  |  Terms and Conditions  |  Accessibility Statement  |  Privacy Policy  |  Site Map

Options are not suitable for all investors as the special risks inherent to options trading my expose investors to potentially rapid and substantial losses. Please read Characteristics and Risks of Standardized Options before investing in options

© Copyright 2001-2022 Terry's Tips, Inc. dba Terry's Tips
235 Primrose Lane, Ferrisburgh, VT 05456