November 28, 2022

Dear Friend,

Today we bring you our Option Trade of the Week, an idea generated by our trading team, for your consideration. But first, I would like to remind you that our proprietary 10K Strategy has generated average annual gains of 60% for the past five years in actual brokerage accounts (including all commissions) carried out for our subscribers.  In the difficult current year, our portfolios have eked out a small composite gain while the market indices have fallen by 14% or more. 

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Cutting Back on Meds

Medical-device maker Medtronic (MDT) reported earnings this week that hardly impressed the Street. Quarterly sales and earnings fell from a year earlier, with revenue falling short of analyst expectations while profits met projections. The company also cut its full-year guidance, citing the usual supply-chain disruptions and a slower recovery in medical procedures postponed due to the pandemic.

MDT’s report was met with a couple of downgrades along with a heavy dose of target price declines. Nevertheless, the average price target sits above $94, about 19% higher than Friday’s close. That leaves room for more price target cutbacks.

The stock price has been sliding from more than a year, falling 42% from a record high reached in Sep. 2021. Since April, MDT has displayed a pattern of lower highs and lows with the 50-day moving average keeping a lid on brief rallies. The 50-day currently sits at $83, which is also the strike of the short call in our credit spread. This trade is thus based on the current downtrend continuing, with the declining 50-day providing resistance and keeping our spread out of the money.

If you agree that MDT will continue to trade beneath the 50-day moving average (blue line), consider the following trade that relies on the stock staying below $83 (red line) through expiration in six weeks:

Buy to Open the MDT 6 Jan 85 call (MDT230106C85)
Sell to Open the MDT 6 Jan 83 call (MDT230106C83) for a credit of $0.40 (selling a vertical)

This credit is $0.03 less than the mid-point price of the spread at Friday’s $79.12 close. Unless MDT falls quickly, you should be able to get close to that price.

The commission on this trade should be no more than $1.30 per spread. Each spread would then yield $38.70. This trade reduces your buying power by $200, making your net investment $161.30 per spread ($200 - $38.70). If MDT closes below $83 on Jan. 6, both options will expire worthless and your return on the spread would be 24% ($38.70/$161.30). 

Any questions?  Email Terry@terrystips.com

Testimonial of the Week

I’ve always had the greatest respect for Terry’s experience and teachings. There are numerous individuals now trying to sell option schemes. This new guy sending out emails, (name deleted), charging $5000 knows just enough to be dangerous–his free videos are bogus! In my humble opinion, Terry’s one of the few that’s got it right.

~ Robert Yates

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Happy trading,

Terry