from the desk of Dr. Terry F Allen

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Posts Tagged ‘profits’

Global Payments (GPN) Poised to Break $100 Mark

Tuesday, August 8th, 2017

This week we are discussing a new addition to the Investor’s Business Daily (IBD) Top 50 List.  We use this list in one of our portfolios to identify stocks that have displayed strong upward momentum and place spreads to profit from the underlying trend.  Actually, the stock price can even fall a little bit for the maximum gain to be realized.

Terry

Global Payments (GPN) Poised to Break $100 Mark

Several analysts have recently refreshed their bullish targets for GPN.  Here are two of them – Wells Fargo Upgrades Global Payments (GPN) to Outperform and Global Payments price target raised to $105 from $98 at Barclays.

GPN boasts a strong uptrend and has recently broken above major resistance at $93.31 after correcting lower for five weeks.  The stock has regained its 20-day moving average following a turn higher in the second week of July and broke to all-time highs on Friday.

GPN Chart August 2017

GPN Chart August 2017

*source Tradingview.com

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

Buy To Open GPN 15SEP17 90 Puts (GPN170915P90)
Sell To Open GPN 15SEP17 95 Puts (GPN170915P95) for a credit of $1.00 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when GPN was trading near $98.  Unless the stock rallies quickly from here, you should be able to get close to this amount.

If you use our favorite broker for this trade, tastyworks, your commission on this trade will only be $1 per opening contract ($2 per spread) (and there is no commission on closing trades, only the $.10 clearing fee).  Each contract would then yield $98 and your broker would charge a $500 maintenance fee, making your investment $402 ($500 – $98).  If GPN closes at any price above $95 on September 15, 2017, both options would expire worthless, and your return on the spread would be 24% (211% annualized).

If you think there’s further upside ahead for Global Payments, consider this trade which is a bet that the stock will continue to advance.

Buy To Open GPN 15SEP17 95 Puts (GPN170915P95)
Sell To Open GPN 15SEP17 100 Puts (GPN170915P100) for a credit of $2.33 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when GPN was trading near $98 at the close yesterday.  Unless the stock rallies quickly from here, you should be able to get close to this amount.

If you use tastyworks, your commission on this trade, each contract would then yield $231 and your broker would charge a $500 maintenance fee, making your investment $269 ($500 – $231).  If GPN closes at any price above $100 on September 15, 2017, both options would expire worthless, and your return on the spread would be 86% (744% annualized).

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

IBD Underlying Updates August 4, 2017

IBD Underlying Updates August 4, 2017

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

Transunion (TRU): A Stable and Consistent Player

Monday, July 31st, 2017

This week we are discussing another one of the Investor’s Business Daily (IBD) Top 50 List companies.  We use this list in one of our portfolio’s to find stocks that have displayed consistent upwards momentum and we look to place spreads that take advantage of this underlying strength.

Terry

Transunion (TRU): A Stable and Consistent Player

Several analysts have recently refreshed their bullish outlook towards Transunion.  UBS Asset Management has increased their stake in the company and both Morgan Stanley as well as Deutsche Bank have raised their price targets to $50.

Transunion has been trading higher within a rising trend channel since the middle of February.  After testing the lower line of the trend channel in the past week, the stock recovered to hit a fresh 52-week high.  The $44.45 level held the stock price lower for a month prior to finally breaking above it earlier this month.  The level is now viewed as support and its proximity to the 20-day moving average as well as the channel bottom emphasizes the area as strong support.

 

TRU Chart July 2017

TRU Chart July 2017

*source Tradingview.com

If you concur that there’s further upside ahead for Transunion, consider this trade which is a bet that the stock will continue to advance, at least a little.

Buy To Open TRU 15SEP17 45 Puts (TRU170915P45)
Sell To Open TRU 15SEP17 46 Puts (TRU170915P46) for a credit of $0.46 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when TRU was trading just above  $45.  Unless the stock rallies quickly from here, you should be able to get close to this amount.

If you use our favorite broker for this trade, tastyworks, your commission on this trade will only be $1 per opening contract ($2 per spread) (and there is no commission on closing trades, only the $.10 clearing fee).  Each contract would then yield $44 and your broker would charge a $100 maintenance fee, making your investment $56 ($100 – $44).  If TRU closes at any price above $46 on September 15, 2017, both options would expire worthless, and your return on the spread would be 78% (624% annualized).

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

IBD Underlying Updates July 31, 2017

IBD Underlying Updates July 31, 2017

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.  The Terry’s Tips portfolio which places spreads like the above one has gained 114.7% so far in 2017 in spite of incurring some losses on some of the spreads placed.  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 Taiwan Semiconductor (TSM) Ready To Resume Higher?

Tuesday, July 18th, 2017

This week we are featuring a company that was just added to the Investor’s Business Daily (IBD) Top 50 List.  I hope that it is of interest to you.  The Terry’s Tips’  portfolio that places trades on our selections from the IBD Top 50 List has gained 117.7% so far in 2017.  Terry’s Tips subscribers who have trades placed in their accounts through Auto-Trade or who follow the portfolio on their own are happy campers right now.

Terry

Is Taiwan Semiconductor (TSM) Ready To Resume Higher?

Taiwan Semiconductor has been gaining popularity among investors as the company supplies key components used in the Iphone.  Apple’s smartphone saw sales exceeding 50 million units last quarter.  These analysts weigh in on why there may be further upside ahead for Taiwan Semiconductor’s stock price – 3 Things This Apple Inc. Supplier Wants You to Know and How To Become A Billionaire In One Step: Sell Components To Apple.

The technical indicators point to a healthy uptrend in TSM.  The stock price recently bounced higher from support at $34.42 and has regained the 20-day moving average.  The stock has held above the same moving average on a weekly chart for most of this year.  A rising trend channel has been in play since May last year and the lower line of the channel offers additional support near recent lows.

TSM Chart July 2017

TSM Chart July 2017

*source Tradingview.com

If you concur Taiwan Semiconductor is ready to resume higher, consider this trade which is a bet that the stock will continue to advance, or at least not decline very much over the next four weeks.

Buy To Open TSM 18Aug17 34 Puts (TSM170818P34)
Sell To Open TSM 18Aug17 35 Puts (TSM170818P35) for a credit of $0.21 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when TSM was trading near $36.  Unless the stock rallies quickly from here, you should be able to get close to this amount.

If you use our favorite broker for this trade, tastyworks, your commission on this trade will only be $1 per opening contract ($2 per spread) (and there is no commission on closing trades, only the $.10 clearing fee).  Each contract would then yield $19 and your broker would charge a $100 maintenance fee, making your investment $81 ($100 – $19).  If TSM closes at any price above $35 on August 18, 2017, both options would expire worthless, and your return on the spread would be 23% (299% annualized).

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

IBD Underlying Updates July 14, 2017

IBD Underlying Updates July 14, 2017

IBD Underlying Updates July 14, 2017

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.  The Terry’s Tips portfolio which places spreads like the above one has gained 80% in the first six months of 2017 in spite of incurring some losses on some of the spreads placed.  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

Consider NutriSystem (NTRI) After The Price Correction

Monday, July 10th, 2017

This week we are looking at another of the Investor’s Business Daily (IBD) Top 50 companies.  In one of our portfolios, we use this list to find stocks that have displayed strong upward momentum and place option trades that take advantage of the trend.

Terry

Consider NutriSystem (NTRI) After The Price Correction

Several research firms have recently upgraded their rating on NutriSystem, the following article provides some details – NutriSytem Inc Receives Consensus Rating of “buy” from Brokerages.  As well, some big players upped their exposure to NutriSystem in the first quarter which is discussed in this article – Swiss National Bank Boosts Stake In NutriSystem Inc.

From a technical perspective, NTRI broke higher from a bullish flag pattern in late June to signal that a seven-week correction from a high posted in April may have completed.

The stock has been trending higher since 2013 and an acceleration of upside momentum is seen from early 2016.  NutriSystem broke above the 100-day moving average in the second quarter of 2016 and aside from a very brief dip below the indicator in January and June this year, the stock has held above it.

NTRI Graph July 2017

NTRI Graph July 2017

*source Tradingview.com

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

Buy To Open NTRI 18Aug17 45 Puts (NTRI170818P40)
Sell To Open NTRI 18Aug17 50 Puts (NTRI170818P45) for a credit of $1.48 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when NTRI was trading near $52.  Unless the stock rallies quickly from here, you should be able to get close to this amount.

If you use our favorite broker for this trade, tastyworks, your commission on this trade will only be $1 per opening contract ($2 per spread) (and there is no commission on closing trades, only the $.10 clearing fee).  Each contract would then yield $146 and your broker would charge a $500 maintenance fee, making your investment $354 ($500 – $146).  If NTRI closes at any price above $50 on August 18, 2017, both options would expire worthless, and your return on the spread would be 41% (355% annualized).

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

IBD Underlying Updates July 7, 2017

IBD Underlying Updates July 7, 2017

IBD Underlying Updates July 7, 2017

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.  The Terry’s Tips portfolio which places spreads like the above one has gained 80% in the first six months of 2017 in spite of incurring some losses on some of the spreads placed.  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

Align Technology (ALGN) A Buy After Being Added To The S&P 500

Monday, July 3rd, 2017

This week we are featuring a company listed on the Investor’s Business Daily (IBD) Top 50 List that has also recently been added to the S&P 500 index.  The stock has displayed strong upwards momentum and we look to place spreads that take advantage of this underlying strength.

Terry

Align Technology (ALGN) A Buy After Being Added To The S&P 500

Align Technology is the designer and manufacturer of the Invisalign System which they state is the most advanced clear aligner system in the world.  Analysts are optimistic of the company’s growth prospects and have recently revised up their expectations.  Zacks ranks this stock as a Strong Buy and these analysts have recently raised their targets: Align Technology (ALGN) PT Raised to $175 at Morgan Stanley; Huge At-Home Ortho Opportunity and Leerink Lifts Target On Align Technology, Sees 27% Upside.

From a technical perspective, ALGN boasts a strong uptrend and trades above key technical indicators.  On a daily chart, the stock jumped above the 20-day moving average following an earnings report in January and has held above it since.

A rising trend channel has been identified to contain price action since late April and a horizontal level at $145.24 offers additional support to create a confluence near the lower bound of the trend channel.

ALGN Chart July 2017

ALGN Chart July 2017

*source Tradingview.com

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

Buy To Open ALGN 18Aug17 140 Puts (ALGN170818P140)
Sell To Open ALGN 18Aug17 145 Puts (ALGN170818P145) for a credit of $1.60 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when ALGN was trading near $150.  Unless the stock rallies quickly from here, you should be able to get close to this amount.

If you use our favorite broker for this trade, tastyworks, your commission on this trade will only be $1 per opening contract ($2 per spread) (and there is no commission on closing trades, only the $.10 clearing fee).  Each contract would then yield $158 and your broker would charge a $500 maintenance fee, making your investment $342 ($500 – $158).  If ALGN closes at any price above $145 on August 18, 2017, both options would expire worthless, and your return on the spread would be 46% (342% annualized).

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

IBD Underlying Updates July 1, 2017

IBD Underlying Updates July 3, 2017

IBD Underlying Updates June 30, 2017

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.  The Terry’s Tips portfolio which places spreads like the above one has gained 80% in the first six months of 2017 in spite of incurring some losses on some of the spreads placed.  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

Merck Breaks Out, can it Continue to Trade Higher?

Wednesday, June 28th, 2017

This week we are featuring an option trading idea based on a stock that just broke out following the Senate healthcare bill.  I hope that it is of interest to you.

Terry

Merck Breaks Out, can it Continue to Trade Higher?
Merck, broke out to fresh all-time highs last week following news from the proposed senate bill that would allow for less regulation and would not crack down on drug pricing.  The Senate appears to be moving toward a vote, which should keep MRK buoyed.

If you concur with the views expressed by these analysts, consider making this trade which is a bet that MRK will continue to advance (or at least not decline very much) over the next six weeks:

Technicals

After breaking out, prices are consolidating above the recent breakout level.  The stock should remain above a downward sloping trend line that shows support near $65. Additional support is seen near the 20-day moving average at $64.33.  Momentum has turned positive as the MACD (moving average convergence divergence) index generated a crossover buy signal.

MRK Chart June 2017

MRK Chart June 2017

*source Stockcharts.com

Buy To Open MRK AUG18   62.50 puts (MRK170818P625
Sell To Open MRK AUG18   65.00 puts (MRK170818P650) for a credit of $0.65 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when MRK was trading slightly above $66.20.  Unless the stock rallies quickly from here, you should be able to get close to this amount.

If you use our favorite broker for this trade, tastyworks, your commission on this trade will only be $2 per spread (and there is no commission on closing trades, only the $.10 clearing fee).  Each contract would then yield $63 and your broker would charge a $250 maintenance fee, making your investment $187 ($250 – $63).  If MRK closes at any price above $65 on August 18, 2017, both options would expire worthless, and your return on the spread would be 34% (230% annualized).

As with all investments, you should only make option trades with money that you can truly afford to lose.

Happy trading,

Terry

Lumentum Holdings (LITE) Is Coiling For An Up Move

Tuesday, June 27th, 2017

This week we are looking at another company listed on the Investor’s Business Daily (IBD) Top 50 List.  We use this list in our portfolio to find stocks that have been strongly trending higher and this week’s stock is an outperformer which has done exactly that.  The Terry’s Tips ’ portfolio that uses this list as its source for underlying ideas is now up 90.3% for the year to date.

Terry

Lumentum Holdings (LITE) Is Coiling For An Up Move

Lumentum Holdings hit all-time highs earlier this month and analysts believe there’s further upside ahead.  Here are two articles that reveal where Lumentum could be heading and why – Lumentum (LITE) PT Raised to $80 at Needham & Company; 3D Sensing Could Double LITE’S Value and DA Davidson Starts Lumentum (LITE) at Buy.

The technical outlook for LITE is solid.  The stock has been trending higher for over a year and a half and an acceleration of momentum can be seen since the start of May, shortly after the company announced earnings.

The earnings report caused a gap above the 20-day moving average and the stock has held above it since.  In addition to the moving average, horizontal support has been identified at $60.50 which held a decline earlier this month.

Lumentum has been consolidating sideways in a range over the past two weeks which is common in strong bullish trends.  A break of the upper end of the range, identified at $65.30, is likely to accompany an acceleration to the upside.

Lumentum Chart June 2017

Lumentum Chart June 2017

*source Tradingview.com

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

Buy To Open LITE 18Augy17 55 Puts (LITE170818P55)
Sell To Open LITE 18Aug17 60 Puts (LITE170818P60) for a credit of $1.73 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when LITE was trading at $64.  Unless the stock rallies quickly from here, you should be able to get close to this amount.

If you use our favorite broker for this trade, tastyworks, your commission on this trade will only be $2 per spread (and there is no commission on closing trades, only the $.10 clearing fee).  Each contract would then yield $171 and your broker would charge a $500 maintenance fee, making your investment $329 ($500 – $171).  If LITE closes at any price above $60 on August 18, 2017, both options would expire worthless, and your return on the spread would be 52% (312% annualized).

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

IBD Underlying Updates June 23, 2017

IBD Underlying Updates June 23, 2017

IBD Underlying Updates June 23, 2017

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.  As we said above, the Terry’s Tips portfolio which places spreads like the above one has gained 90% in the first six months of 2017 in spite of incurring some losses on some of the spreads placed.  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 Arista Networks (ANET) Ready For An Acceleration To The Upside?

Tuesday, June 20th, 2017

This week we are featuring another option trading idea based on a selection from Investor’s Business Daily (IBD) Top 50 List.  I hope that it is of interest to you.

Terry

Is Arista Networks (ANET) Ready For An Acceleration To The Upside?

Arista Networks is up 56.3% YTD and recently published articles indicate the stock is poised for more upside.  Here are two of them – With legal risks fading, Barclays raises Arista Networks target and Needham: 100G upgrade cycle is a boon for Arista Networks.

If you concur with the views expressed by these analysts, consider making this trade which is a bet that ANET will continue to advance (or at least not decline very much) over the next five weeks:

Buy To Open ANET 21Jul17 145 puts (ANET170721P145)

Sell To Open ANET 21Jul17 150 puts (ANET170721P150) for a credit of $1.80 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when ANET was trading slightly above $150.  Unless the stock rallies quickly from here, you should be able to get close to this amount.

If you use our favorite broker for this trade, tastyworks, your commission on this trade will only be $2 per contract (and there is no commission on closing trades, only the $.10 clearing fee).  Each contract would then yield $178 and your broker would charge a $500 maintenance fee, making your investment $322 ($500 – $178).  If ANET closes at any price above $150 on July 17, 2017, both options would expire worthless, and your return on the spread would be 55% (572% annualized).

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

IBD Underlying Updates June 19, 2017

IBD Underlying Updates June 19, 2017

IBD Underlying Updates June 16, 2017

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.  The Terry’s Tips portfolio which places spreads like the above one has gained 76% in the first five months of 2017 in spite of incurring some losses on some of the spreads placed.  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

Actual Positions in One Terry’s Tips Portfolio

Monday, June 5th, 2017

For the first time ever, I will share with you the exact strategy we use in one of the 9 portfolios we carry out at Terry’s Tips.  I will reveal the exact positions we have in this portfolio, their original cost, and our reasoning for putting them on.  This portfolio started out with $3000 at the beginning of 2017, and has gained 83% so far.  It is not our best performing portfolio, but it exceeds the average 2017 gain of 51.7% for all 9 portfolios.

Terry

Actual Positions in One Terry’s Tips Portfolio

Our Honey Badger portfolio is one of our most aggressive (least conservative).  Our strategy is to select companies which rank high on the Investor’s Business Daily Top 50 List, and make the assumption that these high-momentum stocks will continue to be strong for another six or ten weeks.  The stocks don’t actually have to go up at all for us to make the maximum gain on the spreads we place.  We select strike prices which are just below the then-current stock price so we can tolerate a small drop in the price while we hold the positions.

Here are the exact words we published in our June 3, 2017 Saturday Report which reviews performance of all nine portfolios:

Summary of Honey BadgerPortfolio This portfolio started with $3000 in early January 2017.  It will be our most aggressive portfolio. We will select companies from Investor’s Business Daily (IBD) highest-ranked momentum list (The Top 50) and sell vertical put credit spreads betting that the momentum will last at least another 2 months or so.  In 2017, we have had profitable trades with NVDA, HQY, AMAT, ANET, and ULTA, and suffered a big loss on GS which fell by $30 after we placed the trade.

Current positions:

On May 8 when LRCX was trading at $152:
Buy To Open (BTO) 3 LRCX 16Jun17 145 puts (LRCX170616P145)
Sell To Open (STO) 3 LRCX 16Jun17 150 puts (LRCX170616P150) for a credit of $1.90  (selling a vertical)
If LRCX ends up above $150 on June 16, this spread will gain $562.50 after commissions on an investment of $937.50, or 60% (360% annualized)

On May 11 when AVGO was trading at $230:

BTO 4 AVGO 23Jun17 220 puts (AVGO170623P220)

STO 4 AVGO 23Jun17 225 puts (AVGO170623P225) for a credit of $1.62  (selling a vertical)   If ULTA ends up above $225 on June 23, this spread will gain $638 after commissions on an investment of $1362, or 47% (281% annualized)

On May 11 when ULTA was trading at $300:

BTO 4 ULTA 16Jun17 290 puts (ULTA170616P290)

STO 4 ULTA 16Jun17 295 puts (ULTA170616P295) for a credit of $1.90  (selling a vertical)

If ULTA ends up above $295 on June 17, this spread will gain $750 after commissions on an investment of $1250, or 60% (360% annualized)

Honey Badger Portfolio Positions June 2017

Honey Badger Portfolio Positions June 2017

 Results for the week:  With AVGO (at $254.53) up $13.32 (5.5%), LRCX (at $158.74) up $3.62 (2.3%) and ULTA (at $311.47) up $9.07 (3.0%), for the week, the portfolio gained $810 or 17.3%.   The big gain this week came about because of the surge in AVGO which makes the spread almost certain to make the maximum gain when it expires in three weeks.  All three stocks in this portfolio are comfortably above the price then need to be to achieve the maximum gain.  If they remain above the strike of the option we have sold, we will pick up another $180 in 3 weeks.  This will make the gain for the first six months of the year a nice 88% (after commissions, of course).

Since the IBD Top 50 list is such an important source for this portfolio, we keep a careful watch on the stocks which are added on to the list each week and which ones are deleted.  Over time, we hope to determine whether deletions might be good prospects for bearish spreads.  Momentum often works in both directions, and perhaps stocks which had strong upward momentum will have strong downward momentum when IBD determines that the upward trend has ended.

Here are the changes we reported to our subscribers this week:

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

IBD Underlying Updates June 2017

IBD Underlying Updates June 2017

We hope you enjoyed this peek at one of our portfolios, and the strategy we use in this portfolio.  While we know that lots of newsletters out there are making all sorts of great promises about how wonderful their performance is, we don’t know of a single one which will reveal all their trades and is doing anywhere near what we have done. Our results include all commissions as well (most newsletters conveniently ignore commissions to make their results look better).  We invite you to come on board and share in our success.

Happy trading,

Terry

Closing Out Last Week’s Facebook Trades

Wednesday, May 10th, 2017

Today I would like to report on the gains I made last Friday on the trades I told you about that I had placed last Monday in advance of Facebook’s (FB) earnings announcement on May 3.  I was fortunate enough for the stock to take a moderate drop after the announcement, and have some thoughts on how I might play the FB  earnings announcement in 3 months.

Terry

Closing Out Last Week’s Facebook Trades

A little over a week ago, I passed on a pre-earnings trade I had made on Facebook in advance of their May 3 after-market announcement.  Essentially, I bought calendar spreads (long side 16Jun17 series and short side 05May17 series) at the 150, 152.5 and 155 strikes when FB was trading just under $152.

I was hoping that the stock would barely budge after the announcement.  I was lucky.  It did just that, falling a bit to close out the week at $150.24, about $1.50 lower than it was when I bought the spreads.

Near the close, I was able to buy back all of the expiring options (puts at the 150 strike, calls at the 152.5 and 155 strikes for $.02 or $.03), and sell every long call for a higher price than I had paid for the original spread.

Here are the spreads I made today when FB was trading just under $152:

Buy to Open 2 FB 16Jun17 150 puts (FB170616P150)

Sell to Open 2 FB 05 May17 150 puts (FB170505P150) for a debit of $1.49 (buying a calendar)   Spread closed for $2.19, gaining $140.

Buy to Open 1 FB 16Jun17 150 calls (FB170616C150)

Sell to Open 1 FB 05 May17 152.5 calls (FB170505C152.5) for a debit of $3.03 (buying a diagonal)  Spread closed for $3.75, gaining $72.

Buy to Open 1 FB 16Jun17 155 calls (FB170616C155)

Sell to Open 1 FB 05 May17 152.5 calls (FB170505C152.5) for a debit of $.55 (buying a diagonal)  Spread closed for $1.55, gaining $100.

Buy to Open 2 FB 16Jun17 155 calls (FB170616C155)

Sell to Open 2 FB 05 May17 155 calls (FB170505C155) for a debit of $1.59 (buying a diagonal) Spread closed for $1.62, gaining $6.

These spreads cost me a total of $974 plus $12 in commissions at tastyworks’ ultra-low rate of $1.00 per contract.  Even better, when I closed out these trades on Friday, I did not incur a commission at all (only paid the $.10 per contract clearing fee).

I made a net profit of $318 on an investment of $986, or 32% on an investment that lasted for 5 days. The Terry’s Tips portfolio that trades FB options gained 22% last week, and now has gained 215% for the year (after commissions).  The stock has gained 30% in 2017, but our portfolio has done 7 times that number.

The risk profile graph I published in the last blog assumed that implied volatility (IV) of the June options would fall from 24% to 16%.  I was a little too conservative.  IV fell to 18%, and the spreads performed a little better than the graph had projected.

While this is certainly a nice gain for the week, it only came about because I was lucky enough for the stock not to fluctuate very much.  In the future, I think I might buy more spreads at strikes below the current stock price of FB because the clear pattern around announcement time has been for the company to exceed expectations by a nice margin and the stock falls a small amount on the news.

Happy trading,

Terry

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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.

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