Can Five Below (FIVE) Maintain The Earnings Inspired Momentum?

Dear {firstname) –

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.

Terry

Can Five Below (FIVE) Maintain The Earnings Inspired Momentum?

Several analysts are expecting further upside for FIVE, here are two of them – Five Below (FIVE) PT Raised to $145 and Five Below (FIVE) PT Raised to $135 at Buckingham Research.

FIVE broke higher following their earnings report in the past week, scaling above the 50-day moving average.  The indicator is now seen as support and carries some confluence as a horizontal level at $121 as well as a rising trendline originating from December lows are within close proximity.

If you agree there’s further upside ahead for FIVE, 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 FIVE 3MAY19 121 Puts (FIVE19053P121)
Sell To Open FIVE 3MAY19 124 Puts (FIVE19053P124) for a credit of $1.15 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when FIVE was trading near $124.  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 $112.50 and your broker would charge a $300 maintenance fee, making your investment $187.50 ($300 – $112.50).  If FIVE closes at any price above $124 on May 3, both options would expire worthless, and your return on the spread would be 60% (684% annualized).

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

IBD Underlying Updates March 28, 2019

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