Biotech Boom Delivers a Breakout to Celgene Stock (CELG)

Advertisement

Wall Street hosted an old-fashioned buying frenzy yesterday. The bullish onslaught was on full display in the land of biotech as the ever popular iShares NASDAQ Biotechnology Index (IBB) soared above resistance.

Seriously, the quality of the setup and breakout in IBB is something momentum traders dream about. While the rally lifted biotech stocks of all stripes, Celgene (CELG) stands out amid the crowd.

IBB
Source: OptionsAnalytix

Let’s jump into the chart to see what makes Celgene stock so darn attractive here.

For starters, CELG remains well off its highs with plenty of room to run if it wants to catch up to yesterday’s all-time high in the biotech sector. Unlike its peer Gilead Sciences (GILD), which is perched well above support and arguably overextended, Celgene’s run could be just beginning.

Thursday’s pop vaulted Celgene stock above the trendline which has defined its downtrend since March. It also lifted the stock north of the 20- and 50-day moving averages. The monster volume accompanying the move adds validity to the breakout suggesting it has staying power and future dips may well be bought aggressively.

CELG
Source: OptionsAnalytix

High Rewards Beckon in CELG Call Spreads

Spectators looking to get in on the action could buy CELG call spreads.

Options are cheap right now and we can structure a trade well-positioned to deliver epic returns should Celgene stock return to its all-time high.

To allow ample time for the stock to rally eventually eclipse the heretofore impenetrable zone surrounding $130 we will use longer-term options. Buy the Oct $120/$130 call spread for $3.35 or better. The maximum risk is limited to the initial debit and will be lost if Celgene’s stock price sits below $120 at expiration.

The maximum reward is limited to the distance between strikes minus the net debit, or $6.65, and will be captured if CELG rises above $130 by expiration.

At the time of this writing Tyler Craig had no positions on any of the aforementioned securities.

More From InvestorPlace

For a free trial to the best trading community on the planet and Tyler’s current home, click here!


Article printed from InvestorPlace Media, https://investorplace.com/2015/06/biotech-boom-delivers-breakout-celgene-stock-celg/.

©2024 InvestorPlace Media, LLC