Biogen Inc (NASDAQ:BIIB) has had its down moments in 2015. Then in 2016, the whole industry took a beating from then-Presidential Nominee Clinton. Now, President Trump has the baton and continues to promise that the beatings will continue against pharma’s pricing models. That aside, the income model is solid and BIIB stock should survive these temporary price pressures.
Technically, Biogen stock has had a mini breakout, and it now sits just below another one. The bulls have a chance to retest $305 per share or more.
These levels, just above current prices, are pivotal, so they could be resistive. Rather than risking $290 per share to own BIIB stock, revert to Biogen’s options markets. There, you can structure long trades with healthy margins of error.
The Bet: Sell the BIIB July $235/$230 credit put spread. This is a bullish trade that nets 75 cents per contract opened. If successful, this trade yields more than 15% on money risked.
If you want to hedge your bet, sell upside risk. In this case, I’m much more comfortable holding the risk long term and one-sided; the price buffer and the time until expiration allows for relatively easy risk management.
Some investors have stronger appetites for risk, however, and can sell naked puts. Warning: Only do this if you are willing and able to own BIIB stock at the strike price.
The Alternate: Sell the BIIB July $220 naked put. This, too, is a bullish position that pays $3.80 per contract to open. If price falls below the strike, then you will have BIIB stock put to you. If it falls lower than $216, you will accrues losses. The upside of doing a naked put is that it has a slightly larger buffer from current prices.
Remember, you are not required to hold these BIIB stock options trades open through their expiration and you may close any of them for partial gains or losses at any time.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic.
