Dividend Investors Will Love Alexandria Real Estate (ARE)

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.

With many tech stocks entering overbought territory, the appeal for REIT stocks is rising. Take a look at what the following two analysts had to say about Alexandria Real Estate – Why Should You Add Alexandria (ARE) Stock to Your Portfolio? and This is Why Alexandria Real Estate Equities (ARE) is a Great Dividend Stock.

Technicals

The technical outlook for ARE looks promising. The stock has rallied above its 200-day moving average after sellers stepped in to protect a rising trendline that is drawn from the March low. Further, ARE is seen attacking to a resistance level at $158 with strength and is on the verge of a bullish breakout. The moving average and trendline offer strong support for near-term dips.

ARE Chart June 2020

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

Buy To Open ARE 17JUL20 150 Puts (ARE200717P150)
Sell To Open ARE 17JUL20 155 Puts (ARE200717P155) for a credit of $1.43 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when ARE was trading near $159.  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 $141.70 and your broker would charge a $500 maintenance fee, making your investment $358.30 ($500 – $141.70).  If ARE closes at any price above $155 on July 17, both options would expire worthless, and your return on the spread would be 40% (374% annualized).

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

IBD Underlying Updates June 6, 2020

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