Subject: How to Make 50% in 5 Months With Options on Celgene

 

Terrys Tips newsletter
     

Dear Friend,

One of my favorite option plays is to pick a company I like (or one that several people I respect like) and place a bet that it will at least stay flat for the next few months.  Actually, most of the time, I can find a spread that will make a great gain even if the stock falls by a few dollars while I hold the spread.

Today, I would like to share an investment we placed in a Terry's Tips portfolio just yesterday.  By the way, this portfolio has similar spreads in four other companies we like, and it has gained over 20% in the first two months of 2017.  We have already closed out two spreads early and reinvested the cash in new plays. The portfolio is on target to make over 100% for the year (and it is available for Auto-Trade at thinkorswim  for anyone not interested in placing the trades themselves).

Terry

 
Option Tip of the Week

How to Make 50% in 5 Months With Options on Celgene: 

Not only is CELG on many analysts’ “Top Picks for 2017” list, but several recent Seeking Alpha contributors have extolled the company’s business and future.  One article said “Few large-cap biotech concerns have a clearer earnings and revenue growth trajectory over the next 3-5 years than Celgene.”  

Zacks said, “We are expecting an above average return from the stock in the next few months.”  See full article here.

So we like the company’s prospects, and this is the spread we sold yesterday when CELG was trading at $123.65: 

Buy To Open # CELG 21Jul17 115 puts (CELG170721P115)

Sell To Open # CELG 21Jul17 120 puts (CELG170721P120) for a credit limit of $1.72  (selling a vertical) 

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For each contract sold, we received $172 less commissions of $2.50 (the rate Terry's Tips’ subscribers pay at thinkorswim), or $169.50.  The broker will place a $500 maintenance requirement on us per spread.  Subtracting out the $169.50 we received, our net investment is $330.50 per spread.  This is also the maximum loss we would incur if CELG closes below $115 on July 21, 2017 (unless we rolled the spread over to a future month near the expiration date, something we often do, usually at a credit, if the stock has fallen a bit since we placed the original trade).

Making a gain of $169.50 on an investment of $330.50 works out to a 51% for the five months we will have to wait it out.  That works out to over 100% a year, and the stock doesn’t have to go up a penny to make that amount. In fact, it can fall by $3.65 and we will still make 51% on our money after commissions.

If the stock is trading below $120 as we near expiration in July, we might roll the spread out to a future month, hopefully at a credit.  If this possibility arises (of course, we hope it won’t), we will send out a blog describing what we did as soon as we can, just in case you want to follow along.

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This spread is called a vertical put credit spread.  We prefer using puts rather than calls even though we are bullish on the stock because if we are right, and the stock is trading above the strike price of the puts we sold on expiration day, both put options will expire worthless and no further commissions will be due.

As with all investments, option trades should only be made 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

You can see every trade made in the actual option portfolios conducted at Terry’s Tips and learn all about the wonderful world of options by subscribing here.   Why wait any longer to make this important investment in yourself?

Even better, you can become a Terry’s Tips Insider, and receive all our educational reports and materials absolutely free by opening a new account at the best options broker around -
thinkorswimIf you open an account with our link, they will give you 60 days of free trading or up to $600, the same deals they give to everyone who opens an account with them. You must use this link to sign up - open thinkorswim account – and once you have funded your account with at least $3500, email Seth@TerrysTips.com and let him know that you have done it, and this is what he will do – sign you 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.

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

Terry

 


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By the way, my Dad told me about you and your website and I have really learned a lot from your blogs, articles, instruction, etc.  Love the way you explain everything!  

Best,

Cathy

     

Thank you again for being a part of the Terry's Tips newsletter. If you are interested in signing up as an Insider, visit Terry's Tips today for details.

Sincerely,
Dr. Terry Allen
Terry's Tips

 
 
Week 424
March 2, 2017
 
In This Issue
Option Trading Idea of the Week
Testimonial of the Week
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