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.
Innovative Industrial Properties (IIPR) Has Nearly Doubled YTD, Will It Continue to Surge?
IIPR has had an extremely impressive rally in the year thus far, the following two articles suggest it could continue the momentum – Hedge Funds Have Never Been More Bullish On Innovative Industrial Properties and If You Had Bought Innovative Industrial Properties Stock A Year Ago, You Could Pocket A 148% Gain Today.
The stock had been trading sideways for the last six weeks or so but in the past week, a bullish break out seems to have materialized as IIPR is seen climbing above $87.50. The horizontal level represents resistance that held the stock lower in late April and early May. Often when a stock has a strong rally, a consolidation period takes place prior to a bullish continuation. This particular stock makes a strong case for exactly such a scenario.
If you agree there’s further upside ahead for IIPR, 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 IIPR 21JUN19 80 Puts (IIPR190621P80)
Sell To Open IIPR 21JUN19 85 Puts (IIPR190621P85) for a credit of $1.33 (selling a vertical)
This price was $0.02 less than the mid-point of the option spread when IIPR was trading near $89. 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 $130.50 and your broker would charge a $500 maintenance fee, making your investment $369.50 ($500 – $130.50). If IIPR closes at any price above $85 on June 21, both options would expire worthless, and your return on the spread would be 35% (399% 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.