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Cloud-Based Software Company Veeva Systems (VEEV) Breaks to a Record High

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.

Veeva Systems is among a small group of stocks that broke to an all-time high in the past week. The Investor’s Business Daily recently wrote an article explaining why the stock stands out – IBD 50 Growth Stocks To Watch: Veeva’s Virtual Role In The Coronavirus Fight. Also have a look at the following article which discusses the company’s strong financials and prospects for growth – Is Now The Time To Put Veeva Systems (NYSE:VEEV) On Your Watchlist?

Technicals

VEEV Chart April 2020

VEEV Chart April 2020

The main appeal to VEEV is that it is a clear outperformer. The stock broke above $177 in the past week which signals that the uptrend has resumed after a correction that started in July last year and lasted until about a month ago. The stock is a bit oversold over the near-term and this could result in a consolidation. However, the bullish break stands to keep the stock well bid on dips with the first level of support at last year’s high of $177.

If you agree there’s further upside ahead for VEEV, consider this trade which is a bet that the stock will continue to advance over the next four weeks, or at least not decline very much.

Buy To Open VEEV 15MAY20 175 Puts (VEEV200515P175)
Sell To Open VEEV 15MAY20 180 Puts (VEEV200515P180) for a credit of $2.18 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when VEEV was trading near $181.  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 $216.70 and your broker would charge a $500 maintenance fee, making your investment $283.30 ($500 – $216.70).  If VEEV closes at any price above $180 on May 15, both options would expire worthless, and your return on the spread would be 76% (1110% annualized).

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

IBD Underlying Updates April 18, 2020

IBD Underlying Updates April 18, 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

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