Profit From the Biogen Inc (BIIB) Stock Dip!

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Biogen Inc (NASDAQ:BIIB) stock had a fantastic start to September with a 15% rally. But in the past few days of trading, it gave back about one-third of it.

Clearly, this is a momentum stock, so it will never give us a clear signal for entry. Dips are not bad, especially in an upward moving market.

Otherwise, the price-earnings ratios go ballistic. And at 300, Biogen’s P/E ratio is absolutly nuclear. This is probably why a lot of its analysts have it as a “hold.”

More often than not, traders tend to overshoot with the price action of momentum stocks. Biogen currently sits exactly at its average price target, so I consider it in balance. Although I don’t know if this will be the absolute bottom in this dip, given the relative equidistance from both extreme expert opinions, I am willing to cautiously risk money on a bullish bet.

No, I won’t spend $318 buying the stock at face value and without any room for error expect a rally to profit. Instead, I will use BIIB options to bet on the fact that the proven support levels will hold through 2017. This eliminates the need to be perfect with my timing.


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To do this I sell puts against levels that are not likely to happen. I prefer this over buying calls because fast movers like Biogen stocks when they correct, they fall into an abyss and I could lose my premium in mere days.

So I prefer selling the premium then let time do the work. Pivotal to my strategy is that I don’t mind owning the shares lower.

I control the position and size of the risk that I am willing to take. I like to leave plenty of room to spare. This gives me more conviction in my thesis, therefore, won’t likely be shaken out on a bad day.

BIIB is not cheap, however, so I can’t justify betting long on it expecting future appreciation in value. So I resort to picking my level based on technical analysis.

Trading BIIB Stock

For more than three years, Biogen stock has had a strong consolidation zone between $250 and $300 per share. Within it, $280 stands out as a shorter-term pivot point. Recently, the bulls broke out from it to rally 15%. Now I look to it to act as forward support for future rallies. So that would be my first line of defense against my longs. I see a similar logic for the $250 area and then again at $215.

This leaves me wanting to commit to BIIB at $240 per share between now and January. The bottom line is that momentum stocks, especially in the biotech industry, are daunting knives to catch. I use options to make it easier by selling puts for income with a big buffer.

The Trade: Sell BIIB Jan 2018 $240 put and collect $2 to open. Here I have a 90% or better odds of retaining my maximum gains. If price falls below my strike, I would accrue losses below 238.

BIIB stock is a high-value ticker so selling naked puts in it requires considerable margin. So who want to mitigate that risk could sell spreads instead.

The Alternate Trade: Sell BIIB Jan 2018 $250/240 which has about the same chances of success and if so would deliver 10% yield on the risk. Compare this with risking $318 buying the shares then hoping they rally another $30 just to deliver similar results as the spread.

Investing in stocks comes with risk so I never bet more than I can afford 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 as @racernic on twitter and stocktwits.

Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2017/09/profit-from-the-biib-stock-dip/.

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