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.
Should You Buy The Dip in Dave & Buster’s (PLAY)?
Several analysts see Dave & Buster’s stock price continuing higher, here are two of them – Dave & Buster’s Entertainment Upgraded by Zacks Investment Research to “Buy” and Dave & Buster’s Entertainment Price Target Raised to $70.00.
From a technical perspective, PLAY is seen bouncing from a confluence of support derived from the 20-day moving average and a horizontal level at $62.50. Further support is seen slightly below the confluence area from a rising trendline that originates from a low posted in late July.
If you agree there’s further upside ahead for PLAY, 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 PLAY 9NOV18 60 Puts (PLAY18119P60)
Sell To Open PLAY 9NOV18 63 Puts (PLAY18119P63) for a credit of $1.03 (selling a vertical)
This price was $0.02 less than the mid-point of the option spread when PLAY was trading near $64. 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 $2.50 per spread (the rate charged by thinkorswim for Terry’s Tips’ subscribers). Each contract would then yield $100.50 and your broker would charge a $300 maintenance fee, making your investment $199.50 ($300 – $100.50). If PLAY closes at any price above $63 on November 9, both options would expire worthless, and your return on the spread would be 50% (570% 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.