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.
Last week was a great one for the market (SPY up 2.6%) and an even better one for the Terry’s Tips 8 actual option portfolios. Every one made gains, and the composite average picked up 11%, a record we are quite proud of.
Consider Kirkland Lake Gold (KL), A Gold Mining Growth Stock
The Investor’s Business Daily recently posted an article which started out by stating “Gold might not come to mind first when you think of growth stocks” which is very true. Take a look at this article for the full write up and the reasoning behind why they see growth potential in this stock. Also check out Kirkland Lake Gold Receives Consensus Rating of “Buy” from Analysts.
KL corrected lower ahead of earnings and was mostly flat following it. The technical significance is that the stock managed to hold above a triple confluence of support derived from a rising trendline, the 50-day moving average, as well as a horizontal support level. Also significant is the prior correction that took place in late summer that was held higher by the 200-day moving average. These developments suggests that
bulls remain firmly in control from a technical perspective while the close proximity of the current price to support offers an attractive entry point. It’s worth mentioning that the correlation between this stock and the price of Gold has strengthened since last month and that Gold appears to be carving out a bottom, at least a near-term one.
If you agree there’s further upside ahead for KL, 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 KL 21DEC18 17.5 Puts (KL181221P17.5)
Sell To Open KL 21DEC18 20 Puts (KL181221P20) for a credit of $0.78 (selling a vertical)
This price was $0.02 less than the mid-point of the option spread when KL was trading near $20.00. 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 $75.50 and your broker would charge a $250 maintenance fee, making your investment $174.50 ($250 – $75.50). If KL closes at any price above $20 on December 21, both options would expire worthless, and your return on the spread would be 43% (402% 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.