How does deep value on and off the price chart resolve itself? If it’s biopharma giant Biogen Inc (BIIB), it’s looking more and more like lower prices are in store. Let me explain.
Shares of BIIB, along with the biotech sector, are in a bear market. And the fact is, the bear doesn’t appear tired of its prey either.
This warning is in spite of the fact Biogen is arguably a solid value fundamentally after trending lower for almost a full year and seeing shares collapse by almost 50%.
Personally, I champion BIIB’s situation as an opportunistic optimist … but the market continues to suggest it’s not interested in the chorus of bulls singing praise for BIIB.
Case in point, even with an earnings blowout in late January, shares of BIIB haven’t even been able to reclaim the highs of a very temporary relief bid immediately on the heels of the report. At the same time, the market is still reacting poorly to overtly bearish reports like Thursday’s news a European court had revoked Biogen’s multiple sclerosis patent for its Tecfidera drug.
BIIB Stock Weekly Chart
The weekly chart of BIIB stock shows a name that’s been under sufficient technical pressure, in terms of time and price, as to put it on the radar for a bullish trend change.
But as noted earlier, the inability of BIIB stock to move higher with the broader market despite its advantaged value positioning, suggests the bear market in BIIB is not over.
Over the past few weeks, BIIB stock moved marginally higher off its own early February low, and bulls might suggest a lower-low, double bottom is developing as part of a new trend that’s found support off the 50% retracement level from BIIB’s 2008 low.
Unfortunately, the bullish forecast in BIIB appears misplaced given what’s been stated. And mind you, I championed Biogen back in January in front of earnings due to those same factors.
But as conditions change and the market talks, this strategist believes a bearish flag is setting the stage for a breakdown of technical support and BIIB’s bear market will resume.
A Bearish BIIB Options Strategy
In reviewing the BIIB options board, the June $230/$210 bear put spread for up to $5.50 is attractive.
The out-of-the-money vertical requires a move of about 10% to the downside in BIIB for the trader to breakeven at expiration and a more significant decline of nearly 17% to capture the max profit of $14.50 and return of 262%.
The upside of these decidedly bearish requirements is the June vertical allows for plenty of time for BIIB to continue its bearish ways.
And should BIIB simply opt for upside in spite of the current weakness? With fairly light Greek risks right now, significantly cutting down the max loss on a change of technical character should be possible and certainly worth consideration.
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.
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