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.
Visa (V) – A Steady Performer Poised for Gains
Visa is a popular stock among analysts. So much so that Kiplinger included it in their top 20 stocks to buy for 2020. Morgan Stanley likes the stock as well, check out the following article that discusses a price target upgrade – Morgan Stanley lifts Visa, Mastercard price targets.
Visa rallied to a record high in the past week, clearing above a hurdle near $186 that had held it lower in September. The stock trades comfortably above its 20-day moving average which has been offering support ever since the stock climbed above it in the second half of October.
If you agree there’s further upside ahead for V, 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 V 24JAN20 185 Puts (V200124P185)
Sell To Open V 24JAN20 187.5 Puts (V200124P187.5) for a credit of $0.87 (selling a vertical)
This price was $0.02 less than the mid-point of the option spread when V was trading near $188. 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 $85.70 and your broker would charge a $250 maintenance fee, making your investment $164.30 ($250 – $85.70). If V closes at any price above $187.5 on January 24, both options would expire worthless, and your return on the spread would be 52% (593% 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.