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.
Wedbush recently raised its MSFT target price from $ 260 to $ 270 and sees potential for $ 300. The following two articles explain the price improvement and why MSFT is growing. Microsoft will gain another 20% as cloud computing strength leads to strong returns, Wedbush says and Microsoft: Still not fully rated, here’s why.
From a technical standpoint, MSFT recently saw a bullish breakout above a horizontal resistance level of $ 225. The same level had capped rallies three times in the fourth quarter of 2020 and is seen as strong support in case the stock pulls further from here. There is also support at USD 231.15 which marks the late August high.
If you’re okay with MSFT having more benefits ahead of you, consider this trade, which relies on the stock staying above $ 230 by the expiration in five weeks.
Buy to Open MSFT 05MAR21 225 Puts (MSFT210305P225)
Sale to open MSFT 05MAR21 230 Puts (MSFT210305P230) for $ 1.73 credit (sale of a vertical)
This credit is $ 0.02 below the midpoint of the options spread when MSFT was trading near $ 232. 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 $ 171.70. This reduces your purchasing power by $ 500 and brings your investment to $ 328.30 ($ 500- $ 171.70). If MSFT closes above $ 230 on March 5th, both options will expire worthless and your return on the spread will be 52% ($ 171.70 / $ 328.30) or 593% 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, Calls, Cloud Storage, Microsoft, Monthly Options, MSFT, Portfolio, Profit, Profits, Puts, Risk, Terry’s Tips, Vertical Put Spread, Volatility, Weekly Options
This entry was posted on Monday February 1st, 2021 at 3:44 pm and is filed under Coffee Can Investing, Credit Spreads, Last Minute Strategy, Lazy Way Strategy, Monthly Options, SPY, Stock Options Trading Idea of the Week, Stock Options Strategies , weekly options.