July 11, 2023

Dear Friend,

The second half started out well for Insider members, as our four portfolios have now combined to return subscribers more than 20% for 2023. And our QQQ portfolio had a huge week and is now up a whopping 74%.  

Don’t miss out on the profits. For our loyal newsletter subscribers, I’m of course keeping the sale going that saves you more than 50% on a monthly subscription to Terry's Tips.

You’ll get …

• A month of all trade alerts in our four portfolios, giving detailed instructions for entering and exiting positions.
• Four to five (depending on the month) weekly issues of our Saturday Report, which shows all the trades and positions for our four portfolios, a discussion of the week's trading activity and early access to our Option Trade of the Week.
• Instructions on how to execute the 10K Strategy on your own.
• A 14-day options tutorial on the opportunities and risks of trading options.
• Our updated 10K Strategy white paper, a thorough discussion of the strategy basics and tactics.
• Full-member access to all our premium special reports that can make you a wiser and more profitable options trader. 

To become a Terry's Tips Insider Member, just Click Here, select Sign Up Now and use Coupon Code D21M to start a monthly subscription to Terry’s Tips for half off. You can cancel after a month but, of course, keep all the valuable reports.

I look forward to having you join in the fun! Now on to the trade ...

Here's your Option Trade of the Week as included in this past weekend’s Saturday Report for our Terry’s Tips Insider Members. With earnings off the table, we went with a mainstream name that is having a great year that may get ever better. The premium has declined a bit since the weekend (all the more reason to get the trade on Saturday!), but I still like the position at the reduced credit.

Good luck with the trade!  

Hanging on By More Than a Thread

No earnings plays this week, as this was the dead week before the new season kicks off. So, I’m turning to one of the prettiest charts there is, one that was boosted by a major product announcement this week. Facebook Meta Platforms (META) launched their version of Twitter, called Threads, to deepen the divide between Mark Zuckerberg and Elon Musk. The Zuck seems to have landed a solid punch with Threads, which he claimed had signed up more than 70 million by Friday morning. The cage match will no doubt continue with accusations and lawsuits, which will make it all the more fun to watch.

The stock reacted by jumping 3% on Wednesday, though it gave back half those gains by week’s end. A wider view shows that META has been on a consistently impressive run since November. The key has been consistency: the largest drawdown during this stretch was a mere 10% in February. The rally has been guided almost perfectly by the 20-day moving average, which has allowed just eight daily closes below it this year (that’s remarkable for a short-term moving average). Moreover, the 50-day moving average hasn’t been challenged since it started moving higher in late December.

We know that all rallies (and declines) end at some point. META’s will, too. But when? This trade is a bet that it won’t be within the next couple of months. The options market agrees, as out-of-the-money (OTM) calls are priced higher than equidistant OTM puts. I will note that this trade extends through META’s earnings, which are scheduled for July 26. The stock has reacted violently to earnings in recent quarters, with moves averaging 21% the day after the past six earnings reports (three higher and three lower). So, there will likely be some excitement with this trade.

Despite META’s bullish trend, I am exercising some caution with this trade. I could go the aggressive route, choosing a short put strike that is just beneath the 20-day moving average (red line) at the 280 level. That’s about 3.5% below the current stock price and provides a max return of 55-60% for a 5-point spread. But I’m choosing to add a larger cushion of safety by going down to the 260 strike, which is the site of the 50-day moving average (blue line) and 10% below META’s price. The return is about half that of the aggressive trade, but I want to play it safer. The choice of strikes is of course up to you.

If you agree that META will continue to respect its moving averages, consider the following credit spread trade that relies on the stock staying above $260 (green line) through expiration in 6 weeks:

Buy to Open the META 18 Aug 255 put (META230818P255)
Sell to Open the META 18 Aug 260 put (META230818P260) for a credit of $1.05 (selling a vertical)

This credit is $0.05 less than the mid-point price of the spread at Friday’s $290.53 close.  Unless META surges sharply at the open on Monday, 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 $103.70. This trade reduces your buying power by $500, making your net investment $396.30 per spread ($500 - $103.7). If META closes above $260 on Aug. 18, the options will expire worthless and your return on the spread would be 26% ($103.70/$396.30).  

Testimonial of the Week

It is often said that options are to stock trading as chess is to checkers. I was looking to find the chess master amongst the checker’s champs, and Terry is the one. Looking for the very smart yet understandable way to trade options? Look no further. ~ Phil Wells

Any questions?  Email Jon@terrystips.com. Thank you again for being a part of the Terry's Tips newsletter.

Happy trading,

Jon