Amgen, Inc. (AMGN) Stock Is the Cure for Ailing Portfolios

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As violent as the biotech sector has been for the past twelve months, stocks like Amgen, Inc. (NASDAQ:AMGN) have been resilient in setting new highs. While the range is flat overall, AMGN stock has had several +/- 25% moves in recent months.

There is no shortage of uncertainty in the sector, and that usually offers opportunity to sell risk for income. While prices have been volatile, their fundamentals have not changed. Most of the headlines are not specific to AMGN stock, but rather caused by politicians.

Fundamentally, Amgen stock is cheap from a price-earnings perspective and it does so with great net profit margins. It’s twice as cheap as Merck & Co., Inc. (NYSE:MRK), three times cheaper than Celgene Corporation (NASDAQ:CELG) and runs much better net margins than both.


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So headlines aside, the company is a solid bet in a bullish equity market. The fact that it also pays a dividend adds to the support that the stock has on bad days. These are facts against which I can sell risk for profit.

I am not one to chase upside prices. Instead, I prefer selling puts below below solid support levels for income. If price stays above my puts then I get to retain my premium for maximum gains. The trick is to find the levels where I would want to own the shares should price go against my thesis.

I don’t do this with stocks that have questionable futures. I only sell puts behind solid fundamentals. Case in point, a trade I shared in May delivered profits. I’m just looking to rinse and repeat.

The Bet: Sell AMGN stock Oct $145 put and collect $1.25 to open. This bullish trade has a 90% theoretical chance of success. Otherwise, and if price falls below my strike, I will have to buy the shares and suffer losses below $143.75. It wouldn’t be so terrible, however, to own AMGN at a 15% discount from current levels.

Not all investors are willing nor able to own the shares, so I can sell a spread instead. There I would limit the risk and thereby render the trade more palpable for most options traders, especially going into an earnings event.

The Alternate Bet: Sell AMGN stock Oct $150/$145 bull put spread where I have about the same chance of success but with limited risk. Yet, if successful the spread still delivers a respectable 10% in yield. Compare this to risking $172 to buy the shares at face value then hope for a double-digit rally to profit.

Investing is dangerous, so I never risk more than I can lose.

Learn how to generate income from options here. 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.

Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2017/07/amgen-inc-amgn-stock-is-the-cure-for-ailing-portfolios/.

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