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. The actual portfolio we conduct at Terry’s Tips using these trades has gained 36% over the first six weeks of 2018 in spite of losing money on one of the spreads. The average of all our portfolios has gained 23.2% while the market (SPY) is up only 2.2%.
Is Floor & Decor (FND) stock offering an entry point?
Several analysts expect further upside for FND stock, one analyst has recently revised up price targets to $50 and this article discusses recent favorable coverage in the media.
FND is seen bouncing from a notable confluence of support near the $43 price point. The area contains a horizontal level at $42.43 that was previously major resistance that is not seen as support. Also, the lower line of a rising trend channel is found near the horizontal level. The combination offers strong downside support and price action so far has shown buyers to protect the area.
If you agree there’s further upside ahead for Floor & Decor, consider this trade which is a bet that the stock will continue to advance over the next four weeks, or at least not decline very much.
Buy To Open FND 16Mar18 40 Puts (FND180316P40)
Sell To Open FND 16Mar18 45 Puts (FND180316P45) for a credit of $1.53 (selling a vertical)
This price was $0.02 less than the mid-point of the option spread when FND was trading near $45. Unless the stock rallies quickly from here, you should be able to get close to this amount.
If you use our favorite broker for this trade, tastyworks, your commission on this trade will only be $1 per opening contract ($2 per spread) (and there is no commission on closing trades, only the $.10 clearing fee). Each contract would then yield $1.51 and your broker would charge a $500 maintenance fee, making your investment $349 ($500 – $151). If FND closes at any price above $45.00 on March 16, both options would expire worthless, and your return on the spread would be 43% (632% 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.
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