Looking for more upside in Amgen

• Posted by Greg Harmon
• on December 30th, 2015

Big pharma companies are known as defensive plays when the market is unsteady, but they have been cruising along with the rest of healthcare the last few years. One that has had a rough 2015, moving sideways until the August and September swoons, is Amgen ($AMGN). After moving in a channel for the first 7 months of 2015, it broke out to the upside to start August. That break out did not even last a week though, and followed into a rout to the downside.

From the spike to the bottom in September the stock had dropped over 25%. Since then it has rebounded though and has been consolidating under 165 as resistance for 2 months, with tightening support. An ascending triangle. The chart below shows this action as price presses against 165. A break over the top would give a target from 180 to 195 depending on how aggressive you want to be about that triangle.

Both targets sound pretty good. Maybe too good for the short run. Looking left there is that prior channel with a top at 173. But even a move to 173 and a stall there is good for 6% in short order. You can sit and watch for the break out to join in and see how far it goes. Another way to participate would be to use options. With the stock set to report earnings January 26th, using the January 22 expiry options chain is a good place to look for a possible run up into earnings.

The structure is then dependent upon your options knowledge and risk tolerance. A straight January 22 Expiry 165 Call for about $3.00 is a defined risk way to participate. For less cost sell the January 22 Expiry 172.5 Calls for about 65 cents, shaving about 20% of your cost but capping the return at the prior channel top. An aggressive trade could also sell the January 22 Expiry 155 Puts for about $1.30. This adds risk of being assigned the stock at 155, but there has been good support at that level.

This is my last trade idea of 2015. I hope all of you have found some of them useful and profitable and learned something about trading, technical analysis or options. Happy New Year!

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Still time left. Contact me at greg@dragonflycap.com and use the code SANTA in the message to get either an annual subscription for $556 (10% off) or an annual subscription plus my book signed for $600.

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