Gilead Sciences, Inc. (NASDAQ:GILD) shares are getting whacked following weaker-than-expected earnings. The biopharmaceutical company reported earnings of $2.23 per share and revenues of $6.5 billion. Both fell short of analyst estimates hence today’s 2.5% drop in GILD stock.
Gilead shares have been locked in a downtrend for the past two years. Once upon a time, GILD sat at a lofty $123. Since those glory days, we’ve seen an endless stream of failed rallies and support breaks usher shares to their current perch of $67.
GILD stock was making some headwind before last night’s announcement. The stock had popped above the 50-day moving average for only the second time this year — a fact that makes this morning’s down-gap all the more insulting.
Just when poor old Gilead gains some traction, the earnings gremlins come and pull the rug out.
With its momentum now lost and the stock returning to the heart of its three-month range, forecasting Gilead’s next step is fraught with difficulty. It’s a coin toss, really.
In situations such as this, I prefer to sidestep directional plays altogether and instead bet on something altogether more predictable: time decay.
This GILD Stock Trade Will Take Flight
If you’re willing to bet Gilead drifts for a few weeks (essentially maintaining its current range), then sell a June iron condor. This options bird is poised to profit if the stock remains between $71 and $64. The iron condor consists of selling a bear call spread, and a bull put spread simultaneously.
Sell the Jun $70/$72.50 bear call and the Jun $65/$62.50 bull put for a combined net credit of 97 cents. The initial premium received represents the maximum reward and will be captured if Gilead’s stock sits between the short strikes ($65, $70) at expiration.
The maximum risk is limited to the spread width minus the initial credit, or $1.53, and will be lost if GILD stock lifts above $72.50 or falls below $62.50 by expiration.
For a profit target, I suggest closing the trade once you capture 50% of the 97-cent credit.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.