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 which trades these weekly trade ideas has gained 157% so far in 2019, by far surpassing our other portfolios which have enjoyed average gains of 19% for the first two months of the year. Of course, past results can’t always be replicated in the future, but we are pleased with the results so far this year.
American Tower Corp (AMT) Rallies to Record Highs, What’s Next?
Several analysts remain bullish AMT following their earnings report in the past week, here are two of them – American Tower Delivers High-Speed Growth in Q4 and Gearing for a bull run? American Tower Corp Moves 7.42% For The Quarter.
AMT has been rising within an ascending trend channel that dates back to a low printed in late December. The price action surrounding the earnings report suggests that bulls remain in control. The stock was volatile on the earnings date, rising about 2% initially but then reversing sharply to end lower on the day. However, a rally the following day after testing the lower bound of the trend channel saw the price break to a record high, fully erasing the earnings-inspired drop. The technical outlook points to the potential of a rally towards the top of the rising trend channel.
If you agree there’s further upside ahead for AMT, 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 AMT 05APR19 175 Puts (AMT190405P175)
Sell To Open AMT 05APR19 177.5 Puts (AMT190405P177.5) for a credit of $0.85 (selling a vertical)
This price was $0.02 less than the mid-point of the option spread when AMT 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 $2.50 per spread (the rate charged by thinkorswim for Terry’s Tips’ subscribers). Each contract would then yield $82.50 and your broker would charge a $250 maintenance fee, making your investment $167.50 ($250 – $82.50). If AMT closes at any price above $177.5 on April 05, both options would expire worthless, and your return on the spread would be 49% (559% 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.