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.
Consider Amazon.com (AMZN) Following the Technical Breakout
AMZN recently made a significant technical break that stands to have bullish repercussions, take a look at what these two analysts have to say about it – Amazon’s Breakout May Fuel A Return To Its All-Time Highs and Amazon Stock Is Finally Breaking Out.
There are several ways to view the AMZN breakout, the above two articles include several of the variations. The one technical break that most are probably watching is the push above the stocks 200 daily moving average. The below chart shows that price stalled out near it three times this year prior to the technical break last week. A declining trendline originating from a high posted in October is also in play. In the current pullback, strong support is seen at the moving average followed by the previously broken descending trendline which is found slightly below the indicator.
If you agree there’s further upside ahead for AMZN, 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 AMZN 26APR19 1760 Puts (AMZN190426P1760)
Sell To Open AMZN 26APR19 1762.5 Puts (AMZN190426P1762.5) for a credit of $0.98 (selling a vertical)
This price was $0.02 less than the mid-point of the option spread when AMZN was trading near $1765. 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 $95.50 and your broker would charge a $250 maintenance fee, making your investment $154.50 ($250 – $95.50). If AMZN closes at any price above $1762.5 on April 26, both options would expire worthless, and your return on the spread would be 62% (707% 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.