Amgen, Inc. (NASDAQ:AMGN) shares are cratering this morning following worse-than-expected results from a recent study on its cholesterol drug Repatha. AMGN stock was down 7% at the opening bell erasing six weeks of gains in one fell swoop.
The sudden turnabout serves as a stark reminder of the risk associated with investing in the biotech space: All drug companies — even the big ones — are one failed study away from instant pain.
If you’re an Amgen shareholder seeking solace, how about this? Despite today’s bloodbath, AMGN stock is merely back to where it was one month ago. If you went on vacation last month when the stock was perched at $169, and you just returned, then you’re probably wondering what all the fuss is about.
For clues on what the future may hold, read on, as I’m about to take a shallow dive into Amgen’s price chart — and suggest a trade.
A Quick Look at Amgen
As to whether today’s downside surprise reversed AMGN’s firmly entrenched uptrend, the answer is no. At least, not the intermediate-term one.
While the drubbing was sufficient in carrying shares below the 20-day moving average, the rising 50-day MA is holding firm. So far at least.
Moreover, there’s an unfilled gap looming large at $165. These unfilled gap areas have a tendency of becoming support levels when tested from higher levels.
The bottom line for the bulls: You’d better defend the $165 zone with vigor. Otherwise, Amgen’s trend will become a hot mess.
AMGN Stock Option Plays for Lovers and Haters
Trade 1: If you think this price dip is a buying opportunity, I suggest selling April put spreads. Despite the crush transpiring in implied volatility today, you can still capture decent premiums selling out-of-the-money puts. Plus, this approach will create a wider profit zone, allowing AMGN shares plenty of room to shake-n-bake before recovering.
Sell the Apr $160/$155 bull put spread for 66 cents. The max reward of 66 cents will be captured if the stock sits above $160 at expiration. You might consider waiting a day to see if AMGN begins to bounce back before pulling the trigger.
Trade 2: AMGN bears thinking the stock will remain heavy for the weeks ahead could sell the Apr $175/$180 bear call spread for 90 cents. Think of this trade as a bet that the stock remains below $175 for the next month.
The reward is limited to the initial 90 cents and will be captured if Amgen shares stay below $175.
As of this writing, Tyler Craig owned bearish options trades on AMGN.