It hasn’t gotten any easier for Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) in 2017 after a difficult 2016. But now, more than ever, I think it’s time to forgive and forget … or at least give TEVA stock another chance.
If you’ve looked — or worse, if you’ve been holding TEVA shares — you know it has been a rough go. Since I last discussed this pharma stock back at the end of February, the price action has pinched our less bullish, but still optimistic put credit spread along the way.
As most investors are aware, though, time can and most often does heal wounds.
The situation in Teva Pharmaceutical is far from perfect, but TEVA stock is cheap. Further, considering that shares took everything from a price-fixing scandal to possible patent protection loss for a key generic to acquisition-tied debt concerns, and still have created a perfect storm, it’s worth giving the shot at least a look.
But don’t take my word for it. Take a look at the other big picture in shares, and you’ll be persuaded.
TEVA Stock Chart
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Still, shares are now testing the 62% retracement level. TEVA stock also has fully confirmed a two-step (or mirror move) Fibonacci-based pattern with leg CD matching the length of leg AB upon its test of $31.
What’s more, April’s monthly candle established a hammer-esque doji for bullish traders to watch. If we get upside penetration, a bottom might be in.
Stochastics have caught our attention as a secondary indicator that’s not fully cooperating with a bottom being in just yet. In fact, the latest crossover is bearish within an oversold condition.
Once again, I’d still proceed with caution.
TEVA Stock Bull Call Spread
Given everything above, I like the TEVA May $32.50/$33.50 bull call spread is attractive.
Priced for 21 cents mid-market with Teva Pharmaceutical stock at $31.14, the trader’s risk is contained to the debit and provides for profits of 79 cents, or a return of 376%, by next Friday should shares travel above $33.50.
I like this vertical for a couple reasons.
First, spreads like this take advantage of neutralizing long premium. There are still risks, of course, the most obvious being a short shelf-life with expiration less than 10 days out. Nevertheless, by buying and selling a contract in TEVA to form this vertical; the position does support a smarter and more consistently profitable trading program.
Secondly, with TEVA stock at the bottom of zone support, I personally don’t wish to be positioning with out-of-the-money put credit spreads. My view is if there’s a technical failure, the implications could in fact be very bearish longer-term.
Lastly, if earnings acts as a bullish catalyst, this spread is in nice position to take advantage of a bullish price reaction.
With more than a week of life left in this vertical after the announcement, and placement just above a two-week pivot high, this is a nice-looking and well-calculated way to position in lieu of TEVA stock.
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.
