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Posts Tagged ‘SPY’

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

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

Visa (V) – A Steady Performer Poised for Gains

Monday, December 23rd, 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.

Visa (V) – A Steady Performer Poised for Gains

Visa is a popular stock among analysts. So much so that Kiplinger included it in their top 20 stocks to buy for 2020. Morgan Stanley likes the stock as well, check out the following article that discusses a price target upgrade – Morgan Stanley lifts Visa, Mastercard price targets.

Technicals

Visa rallied to a record high in the past week, clearing above a hurdle near $186 that had held it lower in September. The stock trades comfortably above its 20-day moving average which has been offering support ever since the stock climbed above it in the second half of October.

VISA Chart December 2019 options trading idea

V Chart December 2019

If you agree there’s further upside ahead for V, 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 V 24JAN20 185 Puts (V200124P185)
Sell To Open V 24JAN20 187.5 Puts (V200124P187.5) for a credit of $0.87 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when V was trading near $188.  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 $85.70 and your broker would charge a $250 maintenance fee, making your investment $164.30 ($250 – $85.70).  If V closes at any price above $187.5 on January 24, both options would expire worthless, and your return on the spread would be 52% (593% annualized).

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

IBD Underlying Updates December 21, 2019

IBD Underlying Updates December 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

Is CBRE Group (CBRE) on the Verge of a Breakout?

Monday, November 11th, 2019

According to the following article, CBRE is one of the two most actively traded stocks in the Property Management industry. Further, out of the two, they believe it offers better value – CBRE Group, Inc. (CBRE) and Fortive Corporation (FTV) Go Head-to-head. While CBRE’s stock price came under a bit of pressure following its latest earnings report, there were some positive takeaways from it. The main one being an upgrade in earnings per share estimates among analysts. Full details can be found here – CBRE Group, Inc. Third-Quarter Results Just Came Out: Here’s What Analysts Are Forecasting For Next Year

CBRE’s stock price is trading in an ascending triangle which is considered a continuation pattern. The price reaction from the company’s recent earnings report was not positive, however, the decline was brief and well supported by the 100-day moving average. More importantly, the stock has since recovered to nearly fully erase the loss which is a sign of strength. These things combined offer a bullish signal and if the stock breaks above triangle resistance around $56, it could enter into a technical breakout.

CBRE Chart November 2019 vertical options spread

CBRE Chart November 2019

If you agree there’s further upside ahead for CBRE, 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 CBRE 20DEC19 50 Puts (CBRE191220P50)
Sell To Open CBRE 20DEC19 55 Puts (CBRE191220P55) for a credit of $1.18 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when CBRE was trading near $55.  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 $116.70 and your broker would charge a $500 maintenance fee, making your investment $383.30 ($500 – $116.70).  If CBRE closes at any price above $55 on December 20, both options would expire worthless, and your return on the spread would be 30% (262% annualized).

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

IBD Underlying Updates November 9, 2019

IBD Underlying Updates November 9, 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

PayPal (PYPL) Is Set To Resume Its Bullish Trend

Monday, November 4th, 2019

Recent headlines are suggesting that now might be a good time to get into PYPL, take a look at what these two analysts are saying about the stock – Why I Just Bought PayPal Stock and PayPal’s Momentum Is Spreading Across the World.

Technicals

There are several recent developments that signal PayPal’s stock may have resumed within its broader bullish trend. For starters, the stock has regained its 50-day moving average. This is an indicator that PYPL traded below for much of the correction that started in July. There is a horizontal level near the moving average that is currently creating a nice support confluence. This level falls near $104 and originates from a low posted in late May. Perhaps the strongest signal is that the stock is bouncing from the 50-week moving average, this is an indicator the stock has not traded below on a sustained basis for at least 5 years. Further, a bullish reversal candlestick has printed on both a weekly and monthly chart.

PYPL Chart November 2019 vertical options spread

PYPL Chart November 2019

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

Buy To Open PYPL 06DEC19 102 Puts (PYPL191206P102)
Sell To Open PYPL 06DEC19 105 Puts (PYPL191206P105) for a credit of $1.13 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when PYPL was trading near $105.  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 $300 maintenance fee, making your investment $188.30 ($300 – $111.70).  If PYPL closes at any price above $105 on December 06, both options would expire worthless, and your return on the spread would be 59% (673% annualized).

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

IBD Underlying Updates November 2, 2019 options strategy

IBD Underlying Updates November 2, 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

Visa (V) Regains Momentum Following Earnings Report

Monday, October 28th, 2019

Visa’s earnings report in the past week has boosted sentiment among analysts. The following two articles include two upward price target revisions and a case for why the stock can continue to strengthen from here – Visa Analysts Encouraged By Q4 Results, 2020 Guidance and Visa stock gains after forecast paints a picture of continued strength in 2020.

The rally that followed the earnings report has lifted Visa’s stock back above all of the commonly looked at moving averages (20, 50 & 100-day). What’s appealing about V is the long-term trend and that dips have been shallow over the year which points to strong demand. There was a correction lower since early September, but the post-earnings upward momentum suggests the stock may have resumed within its broader uptrend.

Visa Chart October 2019 vertical options spread

Visa Chart October 2019

If you agree there’s further upside ahead for V, 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 V 29NOV19 175 Puts (V191129P175)
Sell To Open V 29NOV19 177.5 Puts (V191129P177.5) for a credit of $0.99 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when V was trading near $178.  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 $97.05 and your broker would charge a $250 maintenance fee, making your investment $152.30 ($250 – $97.05).  If V closes at any price above $177.5 on November 29, both options would expire worthless, and your return on the spread would be 63% (730% annualized).

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

IBD Underlying Updates October 26, 2019

IBD Underlying Updates October 26, 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

Salesforce.com (CRM) Offers Value After the Correction

Monday, October 14th, 2019

Salesforce.com’s stock price has corrected lower for the past few months which seems to offer value when considering where analyst price targets are set. Take a look at the following article which discusses an average target of $186.97 –  Investors Jump Off The Fence: salesforce.com, inc., (NYSE: CRM). Also, Jeffries recently reiterated their buy call with a target of $171. Although a bit conservative compared to the average, it still represents potential for a 14% rally.

There are three main things to consider from a technical perspective. The most important is that the stock is bouncing from its 20-month moving average. This is an indicator it has not traded below on a sustained basis in nearly three years. Further, there is a rising trendline in place as well as a horizontal level. The trendline is drawn connecting the low from late last year with the low that printed in mid-August. There has been a bullish reaction so far from when the stock tested the trendline early in the month. The horizontal level falls near $144 and has been respected as both support and resistance over the last year and currently falls near the trendline to create a confluence.

CRM Chart October 2019 Salesforce.com vertical options spread

CRM Chart October 2019

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 15NOV19 145 Puts (CRM191115P145)
Sell To Open CRM 15NOV19 150 Puts (CRM191115P150) for a credit of $1.99 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when CRM was trading near $150.  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 $197.70 and your broker would charge a $500 maintenance fee, making your investment $302.30 ($500 – $197.70).  If CRM closes at any price above $150 on November 15, both options would expire worthless, and your return on the spread would be 65% (741% annualized).

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

IBD Underlying Updates October 12, 2019

IBD Underlying Updates October 12, 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

Will Paycom Software (PAYC) Continue to Outperform?

Monday, August 26th, 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

Will Paycom Software (PAYC) Continue to Outperform?

PAYC has performed incredibly well this year and has significantly outperformed the markets since early August. These two analyst are expecting more upside for the stock – Why Paycom Software, Inc. (NYSE:PAYC) Looks Like A Quality Company and Is Paycom Software (PAYC) Stock Outpacing Its Computer and Technology Peers This Year?

From a technical standpoint, PAYC recently broke to record highs after climbing above resistance at $245. There is now a bit of a support confluence near the horizontal level as a rising trendline falls close to it. The stock shows strength via correlation as it has outperformed the broader markets and most of the stocks on the IBD Top 50 list. The chart below shows performance against the S&P 500 (SPY) which is marked by the gray line. Despite the index trading heavy this month, PAYC has not only manage to rally, but it has done so to new record highs which is impressive to say at the least.

PAYC Chart August 2019 verticle options spread

PAYC Chart August 2019

If you agree there’s further upside ahead for PAYC, 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 PAYC 20SEP19 240 Puts (PAYC190920P240)
Sell To Open PAYC 20SEP19 250 Puts (PAYC190920P250) for a credit of $4.13 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when PAYC was trading near $249.  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 $410.50 and your broker would charge a $1000 maintenance fee, making your investment $589.50 ($1000 – $410.50).  If PAYC closes at any price above $250 on September 20, both options would expire worthless, and your return on the spread would be 70% (798% annualized).

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

IBD Underlying Updates August 22, 2019

IBD Underlying Updates August 22, 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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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