The biotech industry has been dealt a Trump card Wednesday. Now it’s your turn to vote and go long in a much more hospitable environment in these three large-cap biotech stocks.
The pundits and market pollsters got it as wrong as they did with the Brexit vote. Not only did Trump win, but ballot casting in last night’s futures were woefully inaccurate. It’s time to take advantage of past market miscalculations, greater certainty and buy with less risk in biotech stocks.
With HRC out and The Donald in, buying into these three biotech stocks makes more sense than ever. Not only can investors expect pricing anxieties over the past year to be thrown out the window, but these biotech stocks are industry titans with strong growth prospects.
Each of these biotechs has exploded higher Wednesday and could see profit-taking in the near term. As biotech stocks have all been under a year-long spell of bearish technical duress as investors wrongfully priced in a Hillary Clinton presidency, it’s time to buy in!
Let’s now examine the charts and complement a new beginning with some optimistic, yet smarter, limited-risk options spreads that should keep investors “head and shoulders” above the rest in these biotech stocks.
Biotech Stocks to Buy: Celgene (CELG)
And as President-elect Trump might take credit for, the inability of CELG to break below its neckline and instead successfully test the area as a support level, is nothing short of very bullish price action.
Currently, this biotech stock is overbought in the short term. Under a Trump presidency, however, support from investors should prove strong and it’s anticipated that any pullbacks in CELG will be shallow in nature.
Checking in on CELG’s options and shares near $118.75, the Dec $110/$105 bull put spread is attractive. Priced for 55 cents, this vertical trader has the opportunity to get long Celgene through assignment near a bullish gap fill of $109.30.
Assignment would require CELG to trade about 9% below current levels. It’s an area where technical support, if challenged, should prove strong. And if this biotech remains bid above the spread, collecting 12% over several weeks is also a “yuge” winner.
Biotech Stocks to Buy: Regeneron (REGN)
Regeneron is also developing blockbuster drugs to treat rheumatoid arthritis, eczema and cholesterol. Product introductions could lead to additional billion-plus revenue streams on top of its wildly successful vision improving drug Eylea.
Similar to CELG, Regeneron stock also sports a failed head-and-shoulders pattern. In this case though, REGN formed a bearish continuation version, which ultimately was stopped in its tracks.
Bulls confirmed a more optimistic environment going forward by establishing a double-bottom pattern test of the prior neckline breach. As far as an options strategy in this biotech stock, an out-of-the-money REGN bull put spread also makes sense for the same technical reasons laid out in CELG.
Checking the board and shares near $417, the REGN Dec $365/$360 put spread is priced for roughly 60 to 70 cents.
The pricing of this biotech stock vertical is very similar to CELG, but even “H-U-G-E-R!” as the investor keeps the credit if the potential pullback is less than 13% at December expiration.
As well, risk is limited during the life of the spread to about $4.35 depending on the credit received and the opportunity to buy REGN at a massive discount is available through assignment.
Biotech Stocks to Buy: Biogen (BIIB)
Further, and not hurting investors chances, recent merger overtures from the likes of Merck & Co., Inc. (NYSE:MRK) and Allergan plc Ordinary Shares (NYSE:AGN) should provide an additional backstop for BIIB stock investors.
Technically, BIIB has also put in the time on the price chart to suggest better days are ahead for investors.
Following a successful, second-attempt breakout of a yearlong downtrend line, BIIB has now gapped and rallied above similar resistance out of a smaller down channel. As with our other biotech stocks, I like approaching BIIB as a stock to buy on temporary price weakness or failing that, simply collecting a credit if shares remain stronger-than-anticipated.
Reviewing Biogen’s options, the Dec $285/$280 bull put spread is one to consider. Liquidity is not as strong in BIIB, but with shares at $325, fair value is 98 cents.
Bottom line, buying BIIB at such a massive discount through assignment is, ahem, “yuge.” But the alternative of receiving the credit, and a respectable 20% return under less trying circumstances, is certainly nothing to sneeze at either.
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.