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. At Terry’s Tips, we carry out actual portfolios for our subscribers to follow (either on their own or through Auto-Trade at their broker). One of these portfolios places our Idea of the Week that we publish here. So far in 2018, this portfolio has gained 69% and over half the portfolio value is now in cash since several of the put credit spreads that we sold earlier expired worthless over the past two weeks. I hope you enjoy these ideas that we pass along.
Weibo Corp (WB) Surges On a Stellar Earnings Report, Can it Continue the Momentum?
Several analysts have revised up their price targets after Weibo Corporation tripled Q4 earnings earlier this month. Here are two of them – Weibo Corp (WB) PT Raised to $150 at Barclays and Weibo Corp (WB) PT Raised to $154 at Nomura; Momentum Remains Strong.
WB turned from trendline support earlier this month and was boosted to all-time highs following an impressive fourth-quarter earnings report. Since breaking notable horizontal resistance at $132.21 the stock is seen consolidating sideways which is a common bullish continuation pattern after a sharp acceleration to the upside.
If you agree there’s further upside ahead for Weibo, 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 WB 23Mar18 138 Puts (WB180323P138)
Sell To Open WB 23Mar18 139 Puts (WB180323P139) for a credit of $0.48 (selling a vertical)
This price was $0.02 less than the mid-point of the option spread when WB was trading near $139. Unless the stock rallies quickly from here, you should be able to get close to this amount.
If you use our favorite broker for this trade, tastyworks, your commission on this trade will only be $1 per opening contract ($2 per spread) (and there is no commission on closing trades, only the $.10 clearing fee). Each contract would then yield $0.46 and your broker would charge a $100 maintenance fee, making your investment $54 ($100 – $46). If WB closes at any price above $139.00 on March 23, both options would expire worthless, and your return on the spread would be 85% (1152% 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.