Subject: Tap This Trade

Dear Friend,

Today we bring you a brand new Trade of the Week! Each week we share a new trade idea directly from our trading team.

Terry

December 7, 2021

Week 674

Tap This Trade

Cloud data services/data management provider NetApp (NTAP) reported earnings this week that beat estimates on both the top and bottom lines. The company also raised its 2022 profit and sales growth targets. Analysts clearly were impressed, as the stock was hit with several target price increases reaching as high as $111 (23% above Friday’s close). Oddly, Morgan Stanley was the lone dissenter, dropping its target to $98, which is still 9% above the current price (though they still give the stock an Overweight rating).

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Take a look.

The stock didn’t do much after the report, though that can be viewed as a positive given the overall down week for tech stocks. Since gapping higher after its previous earnings report in August, NTAP has traded sideways in a range between the 86 and 95 levels. This trade relies on that range holding through mid-January, as we’re trading a put credit spread with the short put at the 85 level. This is not a bet that NTAP is going to take off (although that would be great). Rather, it’s a bet that the shares will respect the bottom rung of the trading range, especially given the strong earnings and subsequent analyst reactions. Note that the stock last closed a day below 85 before the August earnings report.

If you agree that NTAP will remain in its trading range, consider line in c the following trade that relies on the stock remaining above 85 (through expiration in seven weeks.

Buy to Open NTAP 21Jan 80 put (NTAP220121P80)
Sell to Open NTAP 21Jan 85 put (NTAP220121P85) for a credit of $1.15 (selling a vertical)

This credit is $0.05 less than the mid-point of the option spread when NTAP was trading around $90. Unless the stock rises quickly from here, you should be able to get close to this amount.

Your commission on this trade will be only $1.30 per spread. Each spread would then yield $113.70. This trade reduces your buying power by $500 and makes your net investment $386.30 ($500 – $113.70) for one spread. If NTAP closes above $85 on January 21, both options will expire worthless and your return on the spread would be 29% ($113.70/$386.30).

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Get details here.

Any questions? Email Colin@terrystips.com

Did you know that the actual 10K Strategy portfolios conducted at Terry's Tips averaged gains of over 100% in 2017, 2019, and 2020? The 10K Strategy consists of calendar and diagonal spreads which benefit from the faster decay rates of the short-term puts and calls which are sold (using longer-term options as collateral). You can learn all the details on how to carry out this strategy on your own by subscribing here. Use the Special Code D21M to pay only $98 per month vs. our regular fee of $197 (cancellable any time). 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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Subject: Tap This Trade

Tap This Trade