If entering 2020 I told you were going to have a global pandemic and that Pfizer (NYSE:PFE) would be one of the first companies to bring a highly effective vaccine to market in record time, what would you guess its share price would be up? Double digits? Surely PFE stock would at least beat the S&P 500 index with that type of goodwill tailwind.
While it’s true the drug giant did see a slight boost in late-November, prices have since come right back down amid heavy profit-taking. And now, here we are back to unchanged on the year. Meanwhile, the S&P 500 is up 14%, and the Nasdaq Composite index is up 45%.
So much for outperformance. Pfizer shareholders didn’t even get market returns.
Despite all the potential for a banner year, PFE stock is set to close 2020 much like it began — as a sleepy, steady dividend payer.
Rather than being dissatisfied by its lack of momentum or its inability to join growth stocks in their flight, I suggest accepting Pfizer for the slow-moving stock that it is. Celebrate its juicy 4.19% dividend yield. And, if you must get clever, then look for outperformance through selling puts and covered calls. These so-called stock enhancement strategies have worked like a charm this year.
After taking a closer look at the price chart, I’ll share just such a return boosting strategy that looks ready for deployment right now.
PFE Stock Charts
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Consider the five-year weekly chart for context on Pfizer’s history of stability and payment through cash flow. Despite multiple episodes of soaring and sinking, the stock has ultimately established a relatively steady climb. The 200-week moving average (green line) tells the tale. Its risen at a consistent incline from $28 to nearly $36.
Note how November’s failure to launch has created a retracement directly into a critical old resistance zone at $37. If PFE wants to maintain some bullishness, then we need to see this prior ceiling become a new floor. If it does, this should mark a low-risk entry point for new long trades. It also provides a second chance of sorts for those who missed the initial burst and think there may be another rally in the tank sometime in early-2021.
For more granularity, let’s drill down to the daily chart.
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As fantastic as November’s ascent was, we’ve come full circle and are back to test the breakout point. The $37 zone also hosts the 50-day moving average, a popular gathering ground for dip buyers during uptrends. Breaching this level would certainly make a mess of the uptrend and require downgrading expectations. Even if it happened, though, I really like using today’s trade idea as the first step to building out a longer-term cash flow position.
Get Paid to Buy Shares
Implied volatility soared alongside last month’s price run, but it’s since returned to earth. Still, at the 28th percentile, the implied volatility rank is one of the higher ones available in the market. If you combine that with the stock’s bullish technical conditions and a desire to acquire shares at lower prices, then naked puts look compelling.
Naked Put Trade: Sell the Jan $36 puts for 70 cents.
By selling the put, you obligate yourself to buy 100 shares at $35.30 if the contract sits in-the-money at expiration. At that point, I’d consider selling covered calls to reduce your cost basis further. If Pfizer stock sits above $36 at expiration, however, the put will expire worthless, and you’ll capture the initial 70 cents.
On the date of publication, Tyler Craig held a LONG position in PFE.
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