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Go Long Bristol-Myers Squibb Co (BMY) Stock for Panic Profits!

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Last year was not friendly to pharmaceutical stocks. This was evident as the iShares NASDAQ Biotechnology Index (ETF) (NASDAQ: IBB ) was a political rag doll that resulted in incredible chop trading. Bristol-Myers Squibb Co (NYSE: BMY ) was no different. Although BMY stock had its high moments, it's down over 20% in the past 12 months, and things are getting uglier by the day.

Click to Enlarge The Donald Trump election made things worse. The threat of the now-president's tweets about drug pricing made the sector toxic to investors. However, there was some exuberance late in 2016. We saw many experts tout the drug sector as a catch-up play, but Mr. Trump recently killed that by more attacks in the media.

Today, Bristol-Myers Squibb released bad news on one of its drugs. BMY stock is under severe selling pressure as a result.

I am not one to try and catch falling knives, but in this case I can make an exception. That's because I see levels against which I can sell risk to take advantage of a spike in put premiums.

How to Trade BMY Stock

The bet: Sell a BMY Jun $42/$41 credit put spread for 15 cents. If successful, this trade would yield 16% on money risked. The 16% price buffer gives me an 80% theoretical chance of success. I need Bristol-Myers to stay above my sold spread while the trade is open.

Some of us who don't mind owning BMY stock at a certain level can modify the trade for even more juice. This would bring more risk to the table, but a bigger reward too. I only sell naked puts if I am willing and able to own the stock at the strike sold.

The alternate trade: Sell a Jan 2018 BMY $35 put for 90 cents per contract. This trade would commit me to buying Bristol-Myers stock if it falls through my sold strike. If so, anything under $34.10 per share would accrue me losses. For a more conservative trade, I could push it down to a $30 sold put and only collect 40 cents per contract.

I have to note the threat of impeding downgrades. There are a few analysts with buy ratings who could still drop BMY over the next few days. This usually results in secondary downside waves.

I am not required to hold any options trades through expiration. I can close them at any time for partial profits or losses. Selling options is risky and should only be done if I am willing and able to absorb the potential losses.

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 .

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The post Go Long Bristol-Myers Squibb Co (BMY) Stock for Panic Profits! appeared first on InvestorPlace .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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