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 portfolios to spot outperforming stocks and place spreads that take advantage of the momentum. We selected this same company six weeks ago, and the spread we placed at that time will have gained 60% by next Friday if the stock ends up above $123 at that time (it is about $126 right now).

Terry

Red Hat (RHT) is Set To Extend the Momentum

Red hat stock saw some strong gains in 2017 and several analysts believe there is further upside ahead including BMO Capital Markets who have raised their targets to $142.00 and Wells Fargo & Co who are looking for a rise to $144.00.

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Technicals

From a technical perspective, RHT has been consolidating sideways for a few months.  A confluence of support from a rising trendline dating back to a low posted in June and a horizontal level at $120.00 recently triggered a turn higher which has resulted in the stock price climbing back above its 50-period daily moving average.  The $130 handle may present a hurdle but a break of the level is likely to accompany a renewal of upside momentum.

*source Tradingview.com

If you agree there's further upside ahead for Red Hat, consider this trade which is a bet that the stock will continue to advance, or at least not decline very much over the next four weeks.

Buy To Open RHT 16Feb18 120 Puts (RHT180216P120)

Sell To Open RHT 16Feb18 125 Puts (RHT180216P125) for a credit of $1.83 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when RHT was trading near $126.  Unless the stock rallies quickly from here, you should be able to get close to this amount.

If you use our favorite broker for this trade, tastyworks, your commission on this trade will only be $1 per opening contract ($2 per spread) (and there is no commission on closing trades, only the $.10 clearing fee).  Each contract would then yield $181 and your broker would charge a $500 maintenance fee, making your investment $319 ($500 – $181).  If RHT closes at any price above $125 on February 16, both options would expire worthless, and your return on the spread would be 57% (647% annualized).

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

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

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?

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

Terry
 

    

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Before rejoining Terry's Tips three months ago I struggled to keep my head above water, even attempting to use the 10K strategy. Now when I look at our portfolio I think of the line from "Butch Cassidy and the Sundance Kid", "who are these guys!". Your performance is nothing less than remarkable and indicates a deep commitment of time and energy to make this happen. Yours is a rare accomplishment for a newsletter to help the small investor, the "little guy", achieve success in the incredibly difficult world of investing. You should feel very proud. Thank you! ~ Neal

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Sincerely,
Dr. Terry Allen
Terry's Tips