The recent bullish market activity has given traders many opportunities but traders always need to be cautious. Just because the market has recently moved higher doesn’t necessarily mean it will continue in that direction. Here is a trade idea that considers that scenario but also has a double back-up plan just in case.
Alexion Pharmaceuticals Inc. (NASDAQ:ALXN): Put Credit Spread
The trade: Sell January 90/95 Put Credit Spread (selling the January 95 put and buying the January 90 put) for 70 cents or better.
The strategy: The maximum potential profit for this trade is $0.70 if ALXN is trading above $95 at January expiration. The maximum loss is $4.30 ($5 – 70 cents) if ALXN is trading below $90 at January expiration. Breakeven is $94.30 at expiration based on a $0.70 credit.
The rationale: Alexion is the producer of Soliris which treats patients with paroxysmal nocturnal hemoglobinuria (PHN). The company is widely regarded as a multi-billion pharmaceutical company treating a single orphan disease and others strive for the success Alexion has achieved.
Technically, the stock just recently broke out of a sideways channel and was able to close above the daily 200 simple moving average for the first time since October. The stock closed right around $100 on Wednesday and on Thursday the stock pulled back some but was able to maintain a close above the 200 moving average (around $98) which should now act as support for ALXN. Additionally, the stock had some minor resistance at $96 which should also act as support now and keep the stock from moving lower again.
If you are interested in more of my trade ideas please visit http://markettaker.com/mtm_group_coaching/
As of this writing I did not hold any of the aforementioned positions.