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.
Globus Medical (GMED) Offers an Appealing Entry Point
Several analysts are looking for more upside in GMED, take a look at these two analysts who have recently revised up their upside targets – Oppenheimer Analysts Give Globus Medical a $57.00 Price Target and Let’s Make Some Money With Globus Medical.
From a technical perspective, GMED is seen pulling back in the past few sessions to a well-respected horizontal level found at $52.35. The level has previously acted as both resistance and support, including during a gap down in June. In addition to the horizontal level, the 200-day moving average is in play and held the stock higher on a dip late in the week.
If you agree there’s further upside ahead for GMED, consider this trade which is a bet that the stock will continue to advance over the next seven weeks, or at least not decline very much.
Buy To Open GMED 21SEP18 50 Puts (GMED180921P50)
Sell To Open GMED 21SEP18 52.5 Puts (GMED180921P52.5) for a credit of $0.89 (selling a vertical)
This price was $0.02 less than the mid-point of the option spread when GMED was trading near $52.50. 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 $86.50 and your broker would charge a $250 maintenance fee, making your investment $163.50 ($250 – $86.50). If GMED closes at any price above $52.50 on September 21, both options would expire worthless, and your return on the spread would be 53% (403% 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.