Teva Pharmaceuticals Industries Ltd (ADR) (NYSE: TEVA ) shares continue to circle the drain. The latest setback came following news that the President and CEO of Global Generic Medicines Group, Sigurdur Olafsson, would step down from his position. Traders expressed their displeasure taking TEVA stock down 5.43% Tuesday on heavy volume.
Not that weakness is anything new, mind you. TEVA has bit the dust all year long. With Tuesday's bloodletting, the stock is now down 47% year-to-date.
But wait, there's more! Yesterday's plunge ushered shares to a fresh 10-year low. That's some level of suckitude, friends. It means every investor who added TEVA stock to their portfolio over the past decade is now carrying a losing position.
That's a lot of disgruntled shareholders hoping to have the chance to sell their shares at higher prices. Throw it all together and we're talking about some major overhead resistance, or supply, that should continue to weigh on shares.
On the price front, Teva Pharmaceuticals remains steeped in a downtrend with descending moving averages across the board. Until that changes, all rally attempts should be viewed as an exercise of futility.
The TEVA Stock Pain Trade
The options market provides a variety of ways to profit from continued pain in the Israeli multinational pharmaceutical company. You could always go for the jugular with a put option purchase. Big profits await if TEVA stock really tanks, but you certainly don't have a high probability of profit. So, to increase the odds let's consider a put spread.
Buy the March $35 put for $2.60 while selling the March $30 put for 75 cents. The $5-wide vertical spread can be initiated for a net debit of $1.85. The max loss is limited to the initial $1.85 cost and will be forfeited if the stock sits above $35 at expiration.
The max gain is limited to the distance between strikes minus the net debit, or $3.15 and will be captured if TEVA shares can fall below $30 over the next three months.
You might consider waiting a few days before buying the spread to see if the stock bounces back a bit from Tuesday's bloodbath. It has a history of brief bounces following big down days.
At the time of this writing Tyler Craig had no positions on any of the aforementioned securities.
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