Celgene Corporation stock is attempting a breakout
By
Tyler Craig, Tales of a Technician
Mar 19, 2015, 11:19 am EDT
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Another day, another new all-time high for biotech stocks. The clock-like consistency with which the hottest sector on Wall Street vaults to new heights each week is almost scary.
And yet, the biotech boom rolls on. While this may end badly at some point, no sense in fretting over the inevitable end of a trend. Simply ride it while it lasts.
The next stock bulls should set their sights on is Celgene Corporation (NASDAQ:CELG). Unlike many of its peers who have already launched from support or well established bases, CELG stock is just now attempting to break out of a multi-month ascending triangle.
Its price action looks similar to Regeneron Pharmaceuticals Inc (NASDAQ:REGN), which staged an epic breakout earlier in the week and finds itself up some 11% since.
Source: OptionsAnalytix
Even if CELG doesn’t soar like REGN, we can structure a trade to profit handsomely if the stock happens to rally half as well as Regeneron.
A closer inspection of Celgene’s stock chart reveals resistance in the $125 zone. A break above this price level will complete and confirm the setup. The series of higher pivot lows that has taken root over the past two months suggests an increasing aggression by dip buyers willing to snatch up shares at higher prices. As the apex of the triangle approaches a breakout becomes increasingly likely.
Source: OptionsAnalytix
How to Play the CELG Stock Breakout
Buy the Apr $125/$130 call spread for around $1.96. The trade consists of buying to open the Apr $125 call while selling to open the Apr $130 call.
The maximum risk is limited to the initial $1.96 debit and will be lost if CELG sits below $125 at expiration. Since the spread is so cheap you could simply let the trade ride, which gives CELG a wide berth for fluctuation over the next month. No need to use a stop loss if you’re willing to eat a $196 loss on the trade.
The maximum reward is limited to the distance between strikes minus the net debit, or $3.04, and will be captured if CELG sits above $130 at expiration.
At the time of this writing Tyler Craig had no positions on any of the aforementioned securities.
And yet, the biotech boom rolls on. While this may end badly at some point, no sense in fretting over the inevitable end of a trend. Simply ride it while it lasts.
