Subject: Green Lights are Flashing for Merck & Co (MRK)

 

Terrys Tips newsletter
     

Dear Friend,

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.

Terry 

 
Option Tip of the Week
Green Lights are Flashing for Merck & Co (MRK)

Merck has been in the spotlight because of a recent acquisition and as several biotech’s have produced outsized gains as of late. The following two articles discuss the acquisition and how MRK is a better option compared to one of its peers - Merck: Adding To The Pipeline and Better Buy: Eli Lilly vs. Merck.

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Technicals

The recent technical development in MRK is a significant one. The stock has broken above a horizontal resistance level at $87 that had held it lower on three notable attempts since the summer. Such a consolidation, followed by a break,, is often a precursor to a much larger move to come. With the stock still trading relatively close to its breakout point there is good value as technical traders usually look to defend breakout points if they were to be retested.

 MRK Chart December 2019

*source Tradingview.com

If you agree there's further upside ahead for MRK, consider this trade which is a bet that the stock will continue to advance over the next five weeks, or at least a little bit.

Buy To Open MRK 17JAN20 87.5 Puts (MRK200117P87.5)

Sell To Open MRK 17JAN20 90 Puts (MRK200117P90) for a credit of $0.92 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when MRK was trading near $89.  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 $1.30 per spread.  Each contract would then yield $90.70 and your broker would charge a $250 maintenance fee, making your investment $159.30 ($250 – $90.70).  If MRK closes at any price above $90 on January 17, both options would expire worthless, and your return on the spread would be 57% (650% annualized).

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Changes to Investor’s Business Daily (IBD) Top 50 This Week:

IBD Underlying Updates December 14, 2019

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.

Happy trading,

Terry

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Any questions?   I would love to hear from you by email (terry@terrystips.com), or if you would like to talk to our guy Seth, give him a jingle at 800-803-4595 and either ask him your question(s) or give him your thoughts. seth@terrystips.com

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I look forward to having you on board, and to prospering with you.

Terry
 

 

    
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You must use this link to sign up - open thinkorswim account – and once you have funded your account with at least $3500, email Colin@TerrysTips.com and let him know that you have done it. We will then sign you up for our Premium Service package ($119.95 value plus an extra 4 months of our Premium Service, valued at another $190.80).  You get $300.65 worth of services without paying us one penny.

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Sincerely,
Dr. Terry Allen
Terry's Tips

 
 
Week 568

December 16, 2019
 
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