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.
Wyndham Hotels & Resorts (WH) Technicals Point to More Upside
The following two articles suggest there could be more upside in WH. The first highlights a technical development while the second hints of bullish potential by way of how hedge funds are positioned. Take a look here – Moving Average Crossover Alert: Wyndham Hotels & Resorts and Here’s What Hedge Funds Think About Wyndham Hotels & Resorts.
In addition to the moving average crossover highlighted in the article above, the technicals for WH seem to suggest a new bullish leg could start from current levels after the brief consolidation that started in late April. The rationale being that the stock bounced sharply higher from a confluence of support on Friday that consists of a horizontal level that previously held the stock lower in February and April as well as the 20-day moving average. Also, the recovery from this confluence area combined with a higher close has resulted in a hammer candlestick pattern on a daily chart, a pattern that often signals a reversal from the prior correction.
If you agree there’s further upside ahead for WH, 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 WH 21JUN19 52.5 Puts (WH190621P52.5)
Sell To Open WH 21JUN19 55 Puts (WH190621P55) for a credit of $0.78 (selling a vertical)
This price was $0.02 less than the mid-point of the option spread when WH was trading near $56. 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 $75.50 and your broker would charge a $250 maintenance fee, making your investment $174.50 ($250 – $75.50). If WH closes at any price above $55 on June 21, both options would expire worthless, and your return on the spread would be 43% (402% 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.