This week we are featuring another company listed on the Investor’s Business Daily (IBD) Top 50 List. In one of our portfolio’s, we use this list to identify stocks that have displayed strong upside momentum and look to place options spreads to take advantage of the trend.
Is YY Inc (YY) A Bargain Above $70?
Several analysts have recently upgraded their outlook on YY stock. These two banks have raised their price target to $100, suggesting a potential upside of 35%. YY’s Buy Rating Reaffirmed at Deutsche bank AG and YY Inc. (YY) PT Raised to $100.00
YY stock recently corrected lower and horizontal support at $72.50 has held it higher on a weekly basis. The level originates from a weekly chart and had held the stock lower on an attempt in 2015 and 2016. A secondary level at $70.69 had acted as both support and resistance in late July. It came into play last week to hold the stock higher on several attempts in the second half of the week.
If you agree there’s further upside ahead for YY Inc., consider this trade which is a bet that the stock will continue to advance, at least a little, over the next four weeks.
Buy To Open YY 15Sep17 70 Puts (YY170815P70)
Sell To Open YY 15Sep17 75 Puts (YY170815P75) for a credit of $2.18 (selling a vertical)
This price was $0.02 less than the mid-point of the option spread when YY was trading near $74. 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 $216 and your broker would charge a $500 maintenance fee, making your investment $284 ($500 – $216). If YY closes at any price above $75 on August 15, 2017, both options would expire worthless, and your return on the spread would be 76% (989% 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.