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.
Will Medpace Holdings (MEDP) Break to New All Time Highs?
Medpace Holdings has been getting some media attention as of late, take a look at these two articles to see what analysts are saying about this stock – MEDP vs PRAH: Which Stock Should Value Investors Buy Now? and Bullish Trend Signal for Medpace Holdings.
The technical appeal in MEDP is it’s outperformance compared to the broader markets as well as some of the other stocks on the IBD Top 50 list. MEDP has had a pickup in upside momentum since late October which seems to suggest it has resumed it’s uptrend following a correction. In the past week, the stock saw some sellers near the $64 price point which resulted in a decline towards its 20-day moving average. A break of $64 would have the stock trading at all time highs. The stock appears to be well supported here with further support slightly below the 20-day moving average at $55 which was a level that held it higher after the gap up in late July. As well, there is a rising trendline near the horizontal level that is drawn by connecting the October and November low
If you agree there’s further upside ahead for MEDP, consider this trade which is a bet that the stock will continue to advance over the next six weeks, or at least not decline very much.
Buy To Open MEDP 18JAN19 50 Puts (MEDP190118P50)
Sell To Open MEDP 18JAN19 55 Puts (MEDP190118P55) for a credit of $1.33 (selling a vertical)
This price was $0.02 less than the mid-point of the option spread when MEDP was trading near $58. 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 $130.50 and your broker would charge a $500 maintenance fee, making your investment $369.50 ($500 – $130.50). If MEDP closes at any price above $55 on January 18, both options would expire worthless, and your return on the spread would be 35% (312% 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.