Biotech stock bulls suffered a mild setback over the past month, but if Monday’s powerful rally is any indication it appears a rebound could be in the offing.
Strength out of biotech kingpin Celgene (CELG) helped propel the popular iShares Nasdaq Biotechnology ETF (IBB) 2% higher on the day.
The sharp turnabout in CELG stock warrants a closer look to see if there’s a trade to be had.
On the technical front, CELG has been firing on all cylinders. Celgene has bested the broader market year after year. Buyers brave enough to buy weakness have been rewarded with profits aplenty. I suspect the current pullback will yield similar results.
Click to Enlarge
The mid-July high-volume gap vaulted CELG stock above major resistance near $126.50. After running as high as $140, a mild bout of profit taking has taken Celgene shares back down over the past few weeks.
The retracement is providing a classic re-test of the old resistance to see if it will turn into new support. So far it’s holding nicely.
Provided CELG remains above this support zone the technical outlook looks promising.
Grab CELG Calls for Profits
Given its meteoric rise, CELG stock is sitting at a lofty $131 per share. Would-be buyers shrinking at the hefty price tag can use options to structure a cheaper bullish bet. Further buttressing the appeal for a long option play is the fire sale going on in CELG options.
Demand for derivatives has ebbed in recent months resulting in cheaper Celgene option premiums than normal. The IV rank currently sits at a lowly 12%.
If you’re looking to score on CELG stock’s next ascent, buy the Oct $130 calls for $6.50 or better.
The risk is limited to the initial $6.50 debit and will be forfeited if CELG stock price falls below $130 by expiration.
The reward is unlimited offering unfettered participation on any further upside in CELG over the next two months.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
