Merck & Co., Inc. (MRK) Preps for a Healthy Breakout

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Merck & Co., Inc. (NYSE:MRK) looks healthy as a horse these days. Indeed, shares of the pharmaceutical giant have been galloping higher virtually all year long.

Merck & Co., Inc. (MRK) Preps for a Healthy BreakoutAnd this month, the pace quickened.

It’s high time we analyze all things technical for MRK stock. And, spoiler alert, a promising trade idea awaits below.

The aforementioned pace quickening came in the form of a one-day moonshot earlier this month. The August 5 gap added 10% to MRK stock in one fell swoop. Conviction ran heavy that day, with trading volume surging north of 72 million shares — the highest daily volume in over five years.

Not that Merck stock needed the help. The drug company has been firmly entrenched in an uptrend since spring. The bulls’ dominance is confirmed by rising moving averages across all time frames. Even the sluggish, tug-boat-of-a-smoothing-mechanism 200-day moving average has reversed higher in recent months.

MRK

Source: OptionsAnalytix

What’s particularly beautiful about Merck’s chart is its behavior in the aftermath of August 5. Volume has dwindled amid a sea of sideways chop. Profit-taking has been minimal and absorbed in rapid fashion. And if recent buying patterns persist, a breakout is all but inevitable.

Merck lovers have their eyes set on the $64 level. A breach of that ceiling and buyers will come running faster than Pokemon Go players to a Snorlax sighting.

The MRK Trade

The summer sale in the options mart remains in force. And that means MRK stock options, along with derivatives in virtually every other nook and cranny can be snatched-up on the cheap. The implied volatility rank for Merck stands at a lowly 2%.

If you’re looking to keep things simple, grab the Oct $62.50 call options for around $2.10 or better if Merck can take out $64. The risk is limited to the initial debit while the reward is unlimited.

For a more conservative consideration, try buying the Oct $62.50/$65 bull call spread for around $1.26. The risk is limited to the initial $1.26 while the reward is limited to the distance between strikes minus the debit, or $1.24.

To capture the profit and effectively double your money, MRK only needs to rise to $65 over the next two months.

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

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Article printed from InvestorPlace Media, https://investorplace.com/2016/08/merck-healthy-breakout-mrk-stock/.

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