Top novel coronavirus stock Novavax (NASDAQ:NVAX) is ready to ramp. Wednesday’s session saw NVAX stock burst through resistance amid a rousing 8.3% rally. With little overhead resistance in the vicinity, this red-hot stock offers big profit potential heading into December.
To pre-qualify the trade idea I will unveil below, I must remind readers that Novavax is not a pick for the faint of heart. With the potential for monster gains comes the possibility of quick losses.
If this year has taught NVAX speculators anything, it is that the size of your position matters greatly. It is far easier to ride a small position through tumultuous twists and turns than a large one.
How We Got Here With NVAX Stock
Novavax entered 2020 as a sub-$4 stock that absolutely no one watched. And that was after a 1-for-20 reverse split saved it from the shady land of penny stocks. Then, the novel coronavirus changed everything. Its entrance signaled the beginning of a race with the promise of rich rewards to the eventual winner. Of course, we are talking about the mad dash by biotech and drug companies around the globe to create and bring to market an effective vaccine.
Wall Street quickly recognized NVAX stock as a promising frontrunner. And, as they are wont to do, investors bid prices of the once little-known nobody to the moon and beyond. The volatility, as you might expect, has been intense. After its initial burst stopped just shy of $200, prices were halved in August. Since then, it has been a rocky road to find the bottom.
But if recent price action is any indication, I think we just found the low. Let’s take a closer look.
NVAX Stock Chart
The weekly chart chronicles the astounding ascent and late-year halving of Novavax’s share price. Two things of note stand out. First, we broke the 20-week moving average, signaling a weakening of the long-term uptrend. Second, although we carved out a lower pivot low last month, the downside momentum slowed. That suggests prices are finding a new equilibrium, and buyers are stepping in to stem what could have been a steeper decline.
One added wrinkle to analyzing the price action for a biotech stock is the increased chance for adverse news that creates trend-killing gaps. For a company whose destiny hinges largely on how its vaccine trials fare, this is an ever-present risk for any NVAX trades.
Moving down to the daily time frame shows greater detail on how the multi-month downtrend slowed this month. What caught my eye is a breakout attempt today over the 50-day moving average. This smoothing mechanism has been a useful guide for trend direction. Ever since we fell below it in August, rallies have been rejected, and downward pressure has remained.
This week’s upswing succeeded where so many of its predecessors failed. A close above $100 will confirm the breakout and provide a reason for short-term traders and potentially long-term investors to turn bullish.
Play It Smart With Bull Calls
Because of the higher risk of sudden news and the potential for share prices to cascade lower, I prefer using a defined-risk options trade. The wild nature of NVAX stock translates into wider bid-ask spreads for options, so limit orders are a must for this play.
Bull Call: Buy the Jan $110/$130 bull call spread for $4.70
The risk is limited to your initial cost of $4.70. The reward is capped at $15.30 and will be captured if NVAX stock rises past $130 by expiration.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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