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Will Bristol-Myers Squibb (BMY) Continue the Upward Momentum?

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.

BMY is up nearly 40% from its low in March and several analysts expect it will continue to push higher. Check out the following article that discusses a potential 10% upside – Analysts Are Bullish on Top Healthcare Stocks: Pfenex (PFNX), Bristol Myers (BMY).  Also, take a look at why BMY might be appealing to growth investors – 3 Reasons Why Growth Investors Shouldn’t Overlook Bristol Myers (BMY).

Technicals

After a correction lower that started in May, BMY is showing signs that the uptrend has resumed. The stock has rallied above its 200-day moving average as well as a horizontal price point at $60. The moving average and horizontal level are now seen as strong support on the downside. Ahead of it, an additional support level is seen at $61.75. BMY is outperforming several of the stocks on the IBD Top 50 list in the month thus far. The higher time-frame charts for this stock point to renewed upward momentum while many of the other stocks on the list have started to move sideways.

BMY Chart August 2020

BMY Chart August 2020

If you agree there’s further upside ahead for BMY, consider this trade is based on the stock continuing its advance over the next five weeks, or at least not declining very much.

Buy To Open BMY 18SEP20 60 Puts (BMY20918P60)
Sell To Open BMY 18SEP20 62.5 Puts (BMY20918P62.5) for a credit of $0.68 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when BMY was trading near $63.  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 $66.70 and your broker would charge a $250 maintenance fee, making your investment $183.30 ($250 – $66.70).  If BMY closes above $62.5 on September 18, both options would expire worthless, and your return on the spread would be 36% (411% annualized).

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

IBD Underlying Updates August 15, 2020

IBD Underlying Updates August 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

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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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