DELL reported quarterly results Thursday after the bell that easily beat expectations on both revenue and earnings. The company shipped more than 50 million PCs in 2020, a record high, taking advantage of the higher demand for home-based activities amid the pandemic. In response, several analysts raised their price targets, ranging up to $101, $20 higher than Friday’s close.
The strong results kept DELL’s stock price headed in the right direction. For the week, the stock ticked slightly higher, which is impressive given the Nasdaq’s 5% plunge. In the intermediate term, the stock has been riding along its rising 20-day moving average since crossing above it more than three months ago. Note that the short strike of our credit spread (red line below) lies below the 20-day and the recent lows near $78, so this dual support would need to break for the spread to move into the money.
If you agree DELL’s uptrend will continue, or at least stay above $78, consider the following trade that relies on the stock remaining above $77.50 through expiration in seven weeks.
Buy to Open DELL 16Apr21 75 Put (DELL210416P75)
Sell to Open DELL 16Apr21 77.5 Put (DELL210416P77.5) for a credit of $0.90 (selling a vertical)
This credit is $0.03 less than the mid-point of the option spread when DELL was trading near $81. Unless the stock rallies quickly from here, you should be able to get close to this amount.
Your commission on this trade will be only $1.30 per spread. Each spread would then yield $88.70. This reduces your buying power by $250 and makes your investment $161.30 ($250 – $88.70). If DELL closes above $77.50 on April 16, both options will expire worthless, and your return on the spread would be 55% ($88.70 / $161.30), or 408% annualized.
As with all investments, you should only make option trades with money that you can truly afford to lose.
Follow Terry's Tips on Twitter
Like Terry's Tips on Facebook
Watch Terry's Tips on YouTube