Gilead Sciences, Inc. (NASDAQ:GILD) shares are getting whacked following weaker-than-expected earnings. The biopharmaceutical company reported earnings of $2.23 per share and revenues of $6.5 billion. Both fell short of analyst estimates hence today’s 2.5% drop in GILD stock.
Gilead shares have been locked in a downtrend for the past two years. Once upon a time, GILD sat at a lofty $123. Since those glory days, we’ve seen an endless stream of failed rallies and support breaks usher shares to their current perch of $67.
GILD stock was making some headwind before last night’s announcement. The stock had popped above the 50-day moving average for only the second time this year — a fact that makes this morning’s down-gap all the more insulting.
Just when poor old Gilead gains some traction, the earnings gremlins come and pull the rug out.
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With its momentum now lost and the stock returning to the heart of its three-month range, forecasting Gilead’s next step is fraught with difficulty. It’s a coin toss, really.
In situations such as this, I prefer to sidestep directional plays altogether and instead bet on something altogether more predictable: time decay.
This GILD Stock Trade Will Take Flight
If you’re willing to bet Gilead drifts for a few weeks (essentially maintaining its current range), then sell a June iron condor. This options bird is poised to profit if the stock remains between $71 and $64. The iron condor consists of selling a bear call spread, and a bull put spread simultaneously.
Sell the Jun $70/$72.50 bear call and the Jun $65/$62.50 bull put for a combined net credit of 97 cents. The initial premium received represents the maximum reward and will be captured if Gilead’s stock sits between the short strikes ($65, $70) at expiration.
The maximum risk is limited to the spread width minus the initial credit, or $1.53, and will be lost if GILD stock lifts above $72.50 or falls below $62.50 by expiration.
For a profit target, I suggest closing the trade once you capture 50% of the 97-cent credit.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
