Amgen, Inc.: Buy This Pullback in Amgen Stock (AMGN)

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If you’re looking to pull the trigger on biotech but want stronger price guarantees, look no further than the opportunity currently presenting itself in Amgen (AMGN) stock.

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For the record, I wrote disparagingly about Amgen stock back in mid-September as I tried to place a trade in biotechs, which were finally seeing some bearish comeuppance. The timing couldn’t have been any better, as Amgen stock dropped about 13% in last than two weeks.

In Thursday’s session, AMGN stock once more took on a role of bearish leadership as it shed 3.3% to more than double the S&P 500’s losses.

But despite Amgen’s position at virtually the same price as back in September, I’m not bearish on AMGN — nor should you be.

Amgen Bullish Stock Supports

After recently topping Street top- and bottom-line views and raising guidance, I took a fresh look at Amgen stock.

What I already was aware of was Amgen’s diverse product base spearheaded by its blockbuster rheumatoid arthritis treatment Enbrel. In of itself, though, I don’t see that as enough reason to embrace Amgen stock as a bull.

What I didn’t know — and of more interest — was that AMGN holds the largest pipeline of late-stage trial drugs among biotech companies. Further, the company is a growing presence in the biosimilars market, which is estimated to balloon to $30 billion a year in the next decade. Now that makes Amgen stock a bit more attractive as a secular growth story.

There’s also Amgen stock’s 2.2% dividend, double-digit growth prospects and below-market forward price-to-earnings ratio of 14.

In my last article and with the market in a more bearish place, I was very much focused on the price chart in Amgen stock and a weak biotech sector. It worked out, but my view is also different right now and a bit more positive.

Finally, I was intrigued to discover Amgen’s 10-year collaboration with Kite Pharma (KITE).

For those unfamiliar with the much smaller biotech upstart, Kite Pharma may actually hold the keys to the proverbial castle, which in turn could prove a boon for Amgen stock.

If we’re to believe Kite Pharma — and it still is a year out from completing clinical trials — the company is very confident it has found the cure for non-Hodgkin’s lymphoma cancer which impacts roughly half a million people and more than 70,000 more individuals each year. So, why not just buy KITE stock — why bother with Amgen stock?

For this strategist, Amgen stock is a much more attractive hedged bet due to all the factors already mentioned and in place at Amgen. Beating cancer would simply be a huge amount of icing on the proverbial cake.

Amgen Stock Daily Chart

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Click to Enlarge
Source: Charts by TradingView

Amgen stock is also simultaneously testing its 38% Fibonacci level from its late September low.

The combined levels provides OK evidence that the bulls may step in and try to support shares. But with Amgen’s stochastic oversold but not yet showing a sign of reversing, I think we’ll see a bit more downside first.

Currently my sights are set on the $148 area in Amgen stock and roughly 2% below Thursday’s close. This level is where a 50% retracement comes into play in conjunction with the lower Bollinger Band and the lateral gap/support line drawn in from last November.

But rather than simply buying Amgen stock if shares do in fact visit $148, consider this more conservative approach instead.

Amgen Stock Bull Put Spread

Another reason to hedge one’s bet on Amgen stock rather than just Kite Pharma is AMGN options are very liquid. Some may be enamored by Amgen’s “safe harbor” provisions for a volatile market — I still believe in hedging and limiting downside risks when considering biotech-related positions.

The out-of-the-money bull put spread is effective in this manner. The spread is initiated for a credit that is kept in full if shares of Amgen stock fail to trade below the sold strike at expiration. That’s terrific for income generation.

Alternatively, if Amgen stock trades below the sold put strike, the trader can buy shares via assignment at the spread’s breakeven level. And if the trader’s opinion changes during the life of the position, by closing out the spread, the loss (if any) is always limited to the distance between strikes minus the credit taken in.

Reviewing Amgen stock’s options board, the Dec $140/$135 put spread for a credit of $1 or higher is attractive given what’s been discussed. Currently the vertical trades for about 80 cents, but if shares of AMGN trade to $139, $1.00 should be tradable given the spread’s Greeks.

For a credit of $1, the trader has a breakeven and possible entry price of $139 compared to Amgen stock’s current price near $151. That may not be the bottom of course, but it’s certainly a “safer harbor” to begin a campaign of accumulating Amgen stock or knowing you have a guaranteed stop, even if the worst of times are revisited.

Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.

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The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


Article printed from InvestorPlace Media, https://investorplace.com/2015/11/amgen-position-rx-amgen-stock-using-bull-put-spread/.

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