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.
Can Adobe Systems Continue the Upside Momentum?
ADBE has posted impressive gains in the year thus far, and several analysts believe there is further upside. Here are two of them – Why Adobe Systems Stock Has Jumped 39% So Far in 2018 and 4 impressive Liquid Stocks for Marvelous Returns.
Adobe Systems stock price has one of the strongest trends among the stocks listed on the IBD Top 50 list. The stock has been trading within a rising trend channel for the year thus far and dips have been short-lived. ADBE turned higher from a correction in late June and is seen currently on the verge of breaking to fresh record highs. Strong downside support is seen ahead of the channel bottom at the 20-day moving average which currently confluences with the psychological $250 level.
If you agree there’s further upside ahead for ADBE, 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 ADBE 31AUG18 255 Puts (ADBE180831P255)
Sell To Open ADBE 31AUG18 257.5 Puts (ADBE180831P257.5) for a credit of $1.05 (selling a vertical)
This price was $0.02 less than the mid-point of the option spread when ADBE was trading near $257. 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 $102.50 and your broker would charge a $250 maintenance fee, making your investment $147.50 ($250 – $102.50). If ADBE closes at any price above $257.50 on August 31, both options would expire worthless, and your return on the spread would be 69% (646% 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.