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. Our actual portfolio that makes these investments at Terry’s Tips has gained 188% so far in 2019. Of course, past performance is not always indicative of what might happen in the future, but we feel good about our results so far.
Will Intuit Inc (INTU) Continue to March Higher?
INTU has been holding above a rising trendline that originates from a low posted in late December. Currently, the stock is testing this trendline where a confluence is seen as the 20-day moving average is within proximity as well as a horizontal level near $260 that acted as prior resistance.
If you agree there’s further upside ahead for INTU, 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 INTU 10May19 257.50 Puts (INTU190510P257.50)
Sell To Open INTU 10May19 260 Puts (INTU190510P260) for a credit of $0.93 (selling a vertical)
This price was $0.02 less than the mid-point of the option spread when INTU was trading near $262. 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 $90.50 and your broker would charge a $250 maintenance fee, making your investment $159.50 ($250 – $90.50). If Intu closes at any price above $260 on May 10, both options would expire worthless, and your return on the spread would be 57% (650% 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.