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.
Comcast (CMCSA) Receives An Aggressive Price Upgrade
TD Securities recently upgraded their price targets for CMCSA to $57. That’s more than 30% upside from current levels. They weren’t the only ones to raise targets, full details can be found here. Also have a look at this Zack’s article that makes a case for why timing is right to get into Comcast stock – Here is Why Growth Investors Should Buy Comcast Now.
From a technical perspective, CMCSA has been consolidating between two horizontal levels for about a month. Sideways consolidations often occur following a lengthy uptrend as seen in this stock. Downside support is found at $42.17 followed by the 50-day moving average which falls just below the level, currently near $41.71. An upside break above $44 resistance would signal that the uptrend has resumed.
If you agree there’s further upside ahead for CMCSA, 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 CMCSA 5JUL19 40 Puts (CMCSA19075P40)
Sell To Open CMCSA 5JUL19 42.05 Puts (CMCSA19075P42.05) for a credit of $0.72 (selling a vertical)
This price was $0.02 less than the mid-point of the option spread when CMCSA was trading near $43. 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 $69.50 and your broker would charge a $205 maintenance fee, making your investment $135.50 ($205 – $69.50). If CMCSA closes at any price above $42.05 on July 5, both options would expire worthless, and your return on the spread would be 51% (477% 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.