[Options] Catching Up To the Leaders

Sean McLaughlin
January 3, 2024

Healthcare is an early leader out of the clubhouse to start the year. We've already seen some big moves in names like Merck, Amgen, and Lilly.

This is a sector rotation that makes sense to us. And for this reason, today's trade is in a name we think will play catchup to these leaders.

But first, lets zoom out to observe this chart of $PFE, highlighting the stock sitting near a level that has acted as strong support for numerous times over the past decade:

As we can see, price certainly has memory.

Now lets zoom in:

Looks to me like a potential whipsaw after an attempt at breaking that level. And the bears that got aggressive there might be fuel to kickstart our catchup trade.

We're going to leverage the elevated premium in $PFE options to put on a somewhat aggressive bet.

Here's the Play:

I like entering a $PFE June 27.50/32.50 Bullish Risk Reversal for a small net credit. This means I'll be short the June 27.50 puts and long an equal amount of June 32.50 calls. And the net result of this trade should net me a small -- 5 cents-ish -- credit:

I'm going to lean against the strike of my short puts as my risk management level. If we see $PFE close below $27.50 per share at any time during my hold, then I'll close the entire trade down, book the loss, and move on.

In the meantime, if $PFE begins to push higher, than it'll be no cost to hold and I'll look to hold this position all the way into Summer. Of course, I'll keep an eye on it as it trends and raise my stop to some obvious new support levels as the market dictates. I'll keep you up-t0-date on those stop adjustments in our weekly Jam Sessions.

If you have any questions on this trade, please send them here.

If you missed last week’s video Jam Session, you can catch a replay on Stock Market TV.

~ @OptionsSean

P.S. We do trades like this regularly. If you'd like to leverage Best-in-Class technical analysis into smarter directional options trades, try out All Star Options Risk Free! Or give us a call to learn more: 323-421-7910.

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