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.
While many companies have seen a sharp drop in their stock price as a result of the Coronavirus, REGN has broken to levels not seen since September 2017. Take a look at the following two articles for details – Regeneron (REGN) Gains from Focus on Coronavirus Treatments and Why Regeneron Shares Rose 31.6% in February.
The weekly chart below shows REGN breaking higher from a downward trend channel that has contained price action for nearly five years. This type of upward break usually signals a bullish continuation. On a daily chart, the stock also shows strong upward momentum and technical signs of breaking out. The main appeal to this stock is that it is notably outperforming in a period where the markets have generally been under pressure. Further, the stock is benefiting from the same driver that is otherwise creating downward pressure in the broader equity markets.
If you agree there’s further upside ahead for REGN, 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 REGN 09APR20 490 Puts (REGN200409P490)
Sell To Open REGN 09APR20 492.5 Puts (REGN200409P492.5) for a credit of $1.18 (selling a vertical)
This price was $0.02 less than the mid-point of the option spread when REGN was trading near $494. 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 $1.30 per spread. Each contract would then yield $116.70 and your broker would charge a $250 maintenance fee, making your investment $133.30 ($250 – $116.70). If REGN closes at any price above $492.5 on April 09, both options would expire worthless, and your return on the spread would be 88% (1004% 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.