Biogen Inc (BIIB): Embrace the “Drug Trade”

Biogen Inc (BIIB) stock is trading higher this morning on the shoulders of its latest earnings announcement, and though the movement isn’t anything exciting, Biogen’s setup is convincing enough to suggest that traders side with the bulls right now.

Analysts expected earnings of $4.47 per share, and BIIB delivered $4.79 — a solid beat, but nothing extraordinary. Traders looking for post-earnings fireworks are going to be disappointed — after trading lower in premarket, Biogen stock has recovered to a 3% gain after the opening bell.

With earnings coming in as a nonevent, traders should be eyeing the charts for levels to trade off of.

The action of late has been altogether uninspiring. At $269, Biogen stock is at the same level it was back in August last year. That’s zero progress in eight months. Boooooooo. The channel BIIB has been locked in has a slight downward tilt, suggesting the bears maintain control. Indeed, the falling 200-day moving average confirms it.

It’s always tricky divining direction on a stock sitting in the heart of a trading range. Kinda like tying your shoes when your north of 300 pounds. (Just … can’t… reach.)

I think it’s best to wait for a breakout in either direction before committing capital to BIIB. If today’s post-earnings pop can go the distance the $280 resistance level will provide a clean entry point. A breakout above that could propel Biogen stock to the next resistance at $310. That’s about 10% potential upside.

Biogen BIIB stock chart
Click to Enlarge
Source: OptionsAnalytix

On the flip side, if today’s earnings jump fizzles, bears could look to jump in on a break below $260. A breach of that floor should deliver a swift shin kick, taking BIIB back to it’s 52-week low near $240.

Bet With BIIB Bulls With a Call Spread

I’m inclined to bet with the bulls in BIIB here. The rest of the biotech industry has been looking up, so I suspect Biogen stock to follow in kind.

At around $270, call options on BIIB are too rich to justify a straight call purchase. Instead consider buying call spreads, a bull call spread in particular. Buy the July $280/$310 call spread for around $8.

The max loss is limited to the $8 debit and will be forfeited if Biogen stock sits below $280 at expiration. The max gain is the distance between strikes minus the net debit, or $22, and will be captured if BIIB can rise above $310.

If you want more confirmation before pulling the trigger, consider waiting until BIIB breaks above the $280 resistance level.

 

As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.

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