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.
The Terry’s Tips portfolio that takes actual positions in most of these weekly ideas has gained 88% (after commissions) so far in 2018, taking all the completed gains and losses into consideration. The portfolio currently has five spreads in place, and all of the underlying stocks are trading at a price which is higher than the max gain bogey price, so we are looking for even better results going forward.
Can GrubHub (GRUB) Continue the Upside Momentum?
GrubHub’s stock price recently broke to record highs and these two analysts are optimistic there’s further growth ahead – Why GrubHub Is a Better Growth Stock Than Starbucks and Is GrubHub (GRUB) Outperforming Other Computer and Technology Stocks This Year?
GRUB fell into a consolidation in the first half of August after turning from resistance around $138. The stock price regained some upside momentum in the second half of the month, breaking both above resistance and to fresh record highs. The horizontal level is now seen as support in the event of a near-term pullback. The higher time frames show a clearer outlook as the weekly chart shows a distinct upward continuation from the prior consolidation. On a Monthly chart, the stock closed near highs which indicates strength. As well, it managed to do so despite a long tail on the prior candle which suggests the selling pressure in late July was temporary.
If you agree there’s further upside ahead for GRUB, 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 GRUB 05OCT18 141 Puts (GRUB181005P141)
Sell To Open GRUB 05OCT18 144 Puts (GRUB181005P144) for a credit of $1.33 (selling a vertical)
This price was $0.02 less than the mid-point of the option spread when GRUB was trading near $144. 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 $130.50 and your broker would charge a $300 maintenance fee, making your investment $169.50 ($300 – $130.50). If GRUB closes at any price above $144 on October 05, both options would expire worthless, and your return on the spread would be 77% (878% 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.