ServiceNow (NOW) Eyes All-Time Highs

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.

ServiceNow (NOW) is up 35% from its low two months ago and several analysts expect the stock to continue higher. Here are two of them – Is ServiceNow (NOW) Outperforming Other Computer and Technology Stocks This Year? and 3 Tech Stocks for Growth Investors to Buy for 2020.

Technicals

From a technical perspective, NOW recently scaled above a major horizontal level that resides near $275. This level first came into play in late April and has acted as resistance on multiple occasions. The bullish break signals strength. The next area of interest will tend to be the psychological $300 price point which held the stock lower earlier this year.

NOW Chart December 2019

If you agree there’s further upside ahead for NOW, 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 NOW 24JAN20 282.5 Puts (NOW200124P282.5)
Sell To Open NOW 24JAN20 285 Puts (NOW200124P285) for a credit of $1.03 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when NOW was trading near $287.  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 $101.70 and your broker would charge a $250 maintenance fee, making your investment $148.30 ($250 – $101.70).  If NOW closes at any price above $285 on January 24, both options would expire worthless, and your return on the spread would be 69% (1007% annualized).

Changes to Investor’s Business Daily (IBD) Top 50 This Week:

IBD Underlying Updates December 28, 2019

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.

Happy trading,

Terry