Don’t Be Scared of Biogen Inc (BIIB) Stock

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Biogen Inc (NASDAQ:BIIB) stock has had a choppy few months. It has been ping-ponging back and forth by 15% in either direction as political rhetoric weighs on biotechs. Politicians have used the sector as a political football. First candidate Hillary Clinton and now President Donald Trump both vilify pharma’s apparent price gouging.

That aside, The fundamentals of BIIB remain stable. It is reasonably priced on a price-earnings basis and has good margins. Its P/E is one-third that of Celgene Corporation (NASDAQ:CELG) and almost half of that of Pfizer Inc. (NYSE:PFE). What’s more, BIIB has a price-book under 5, so I consider major dips as opportunities to generate income.


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Technically, Biogen stock is bumping along a bottom that has acted as a pivot for a while. While it’s good that it’s held so far, price could drop more than 10% if it’s eventually lost. Therein lies the opportunity.

When investors see potential downside risk, they anticipate its arrival and price in higher premiums.

I want to leverage that extra juice, so I will sell risk underneath it to generate income. While this is a bullish trade, I don’t need a rally to profit. I merely need to choose a level that is not likely to happen.

By selling downside risk, you have to be willing and able to own BIIB stock if it falls another 10% to 15%.

BIIB Stock Options Play

The Trade: Sell the Oct $195 put and collect $1.75 to open. Here I have a 90% theoretical chance of retaining my maximum gains. But if price falls below my strike, I would then need to buy BIIB stock and suffer losses below $193.25.

Selling naked puts is fraught with risk and I only do it if I want to own shares. Otherwise, I use spreads to limit my exposure.

The Alternate: Sell the BIIB Oct $205/$200 put spread. This has about the same chances of success as the former trade. This compromise, however, still offers the opportunity to yield 9%. This way, I don’t have to risk $254 buying the stock then hoping it rallies 9%.

Using options eliminates the need to be surgical in my entry points. Still, selling options is risky business, so I only risk what I am willing to lose.

Learn how to generate income from options here. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic.

Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2017/06/dont-be-scared-of-biogen-inc-biib-stock/.

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