This week we’re looking at another Investor’s Business Daily (IBD) Top 50 Listed Companies. We use this list in one of our options portfolios to identify outperforming stocks and place option spreads that take advantage of the momentum.
ServiceNow hit a new all-time high in the past week. The following two articles describe some of the reasons that are driving growth – ServiceNow: The workflow revolution is happening and ServiceNow delivers a strong fourth quarter as the wallet share expands.
The monthly candle for NOW in January indicated a possible pullback, but the recent surge to new highs suggests otherwise. The uptrend remains intact for this stock and dips are expected to be bought in the short term. A rising trendline that extends to May last year caught the decline last month as a small consolidation took place that showed buyers are poised to step into the crisis. Short-term support is seen at the December high of $ 566.75. There is momentum behind last week’s move that suggests the rally will continue, although it wouldn’t be surprising if there was a brief period of sideways trading to clear overbought conditions in the smaller periods.
If you are okay with another uptrend NOW, consider this trade which relies on the stock staying above $ 590 by the time it expires in five weeks.
Buy to Open NOW 12MAR21 587.5 Puts (NOW210312P587.5)
Sell to Open NOW 12MAR21 590 Puts (NOW210312P590) for $ 1.38 balance (Selling a vertical)
This balance is $ 0.02 below the midpoint of the options spread when NOW was trading near $ 590. If the stock doesn’t recover quickly from here, you should be able to get close to that amount.
Your commission on this trade is only $ 1.30 per spread. Each spread would then be $ 136.70. This will reduce your purchasing power by $ 250 and make your investment $ 113.30 ($ 250 – $ 136.70). If NOW closes above $ 590 on March 12, both options will expire worthless and your return on the spread will be 121% ($ 136.70 / $ 113.30) or 1380% on a yearly basis.
Changes to Investor’s Business Daily (IBD) Top 50 This Week:
We noticed that the Investor’s Business Daily The top 50 list has been a reliable source of stocks that are likely to rise higher in the short term. Recent additions to the list may be particularly good choices for this strategy, and deletions may be good indicators of getting out of a position you may already have in that stock.
As with all investments, you should only trade options with money that you can really afford to lose.
Have fun trading,
Tags: Bearish Options Strategies, Bullish Options Strategies, Monthly Options, NOW, Portfolio, Profit, Profits, Puts, Risk, ServiceNow, Tips From Terry, Volatility, Weekly Options
This entry was posted on Monday, February 8th, 2021 at 3:16 pm and is filed under 10K Strategies, Last Minute Strategy, Lazy Way Strategy, Monthly Options, Stock Option Trading Idea of the Week, Weekly Options.