If you’re looking for the rare mix of relative safety and potential momentum on and off the price chart, look no further than Regeneron Pharmaceuticals Inc (NASDAQ:REGN). And if you’re a bull keen on reducing risk, a bullish REGN butterfly is a way to engineer a smarter position.
The volatile and cash-burning biotech space may not be an area associated with relative safety. But don’t confuse this type of generality with large-cap leader REGN.
The fact is, Regeneron has been delivering consistent and growing profits and revenues for shareholders the past few years courtesy of its flagship, macular degeneration eye drug, Eylea.
In the most recent quarter, the company brought in earnings of $2.12 per share of REGN while topping views by 22%.
Nice!
Regeneron’s sales did miss estimates, but revenues of $1.21 billion fell shy by less than 2.5%. What’s more, by reaffirming its full-year growth forecast of 20% to 25%, it’s our view REGN stock should be ushering in tears of joy!
Looking forward, Regeneron has the potentially lucrative cholesterol-fighting drug Praluent and is waiting on its U.S. marketing application for dupilumab — an allergy drug which could combat eczema. That’s more good news for REGN stock–right?
Admittedly, there has been some analyst rumblings of growth and competition concerns for REGN’s Eylea. And some investors are also wary of Praluent’s initial slow sales traction, as well as looming data regarding cardiovascular risk. “Oh, no!!??”
This strategist is more inclined to think more like “oh, no … not really” and let others sound the cattle bells and alarm whistles. At the end of the day Regeneron is a proven and profitable biotech company and the risks facing it are simply par for the course within the sector.
What’s more, after a yearlong correction followed by some very good signs of a bottom being in place — REGN concerns look baked in and ready to return some value to investors on its price chart.
REGN Stock Weekly Chart
Shares of REGN topped out early last August after reaching an all-time-high of nearly $606 and having motored nearly 5,000% from the low of the financial crisis back in the spring of 2009.
Over the past year REGN has been a bit less kind to its investors. At its recent corrective low, shares of Regeneron shed about 45%, or nearly half, of those prior gains. The good news and as the provided daily chart suggests — there’s reason to believe a bottom is in place and a new uptrend underway.
A price retreat following a test of REGN’s 200-day simple moving average may cause some concern for traders that mark their territory with the well-watched price line. But given REGN’s more authoritative and failed head-and-shoulder pattern — it’s our view the current pullback is an opportunity to buy on temporary weakness.
REGN Bullish Butterfly
Given what’s been discussed and in reviewing REGN’s options, the September $425 / $440 / $455 call butterfly is attractive.
Priced for $2.25 to $2.50 per spread with REGN stock at $418.40, the bullishly positioned butterfly requires a move of just over 2% at expiration to break even and shows a max profit in excess of 500% if shares are sitting, in a perfect world, at $440 on expiration.
At the same time, risk per contract is roughly contained to just 0.50% of the risk a bullish trader would maintain by owning an equivalent 100 shares of REGN. That’s a nice luxury despite acknowledging the two strategies aren’t wholly comparable and the clock is ticking for the options trader.
Nevertheless, with bulletproof limited risk, an attractive profit zone removed from needing perfection, as well as appreciating a lack of definitive “top and bottom lines” on the price chart — a bullish REGN butterfly may be worth considering.
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.
