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.
REGN has been in the spotlight ever since President Trump received its antibody treatment earlier this month, check out what the following two articles have to say about the company – 3 COVID-19 Antibody Stocks That Are Leading the Race and Is Regeneron a Buy Before Nov. 3?
Horizontal support at $562 is quite important for REGN as it acted as resistance back in 2015 to trigger a major reversal. The level has halted the decline that started over the summer and there are some signs that the upward cycle could continue once again. In addition to the horizontal level, there is a rising trendline in play that originates from the low in early September and the 200-Day moving average is rapidly rising to converge towards the $562 price point.
If you agree there’s further upside ahead for REGN, consider this trade which relies on the stock remaining above the $577.5 level through the expiration in five weeks.
Buy To Open REGN 27NOV20 577.5 Puts (REGN201127P577.5)
Sell To Open REGN 27NOV20 580 Puts (REGN201127P580) for a credit of $1.03 (selling a vertical)
This credit is $0.02 less than the mid-point of the option spread when REGN was trading near $580. Unless the stock rallies quickly from here, you should be able to get close to this amount.
Your commission on this trade will be only $1.30 per spread. Each spread would then yield $101.70. This reduces your buying power by $250 and makes your investment $148.30 ($250 – $101.70). If REGN closes at any price above $580 on November 27, both options will expire worthless, and your return on the spread would be 69% ($101.70 / $148.30), or 718% 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.