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Amgen (AMGN, $50.08, down $1.15) is no stranger to the blog and we recently closed a trade on some call options back on 2/11. I had profiled the March 60 calls (YAACL, $0.07, down $0.09) back on 2/2 and at the time they were going for $1.20. Amgen went on a great run right after that and was up for eight straight trading sessions. We rode these same calls from $1.20 to $2.30 and we stopped out at $1.80. During those eight days, the stock moved from $55 to above $58. The stock may have only moved 5% or so but that was good enough for a 50%-75% profit. Now look at these same call options. Once again, the importance of stops and taking profits.
The shares fell hard on Thursday after 2PM, tanking from $55 to $50 in the last couple of hours. Some of this can be blamed on Obama’s healthcare plan as Wall Street fears that it will lead to reduce revenues. Maybe, but the sell-off is way overdone.
Obviously, I don’t believe Amgen will have the mustard to make it back to $60 by March 20th which is when the March options expire. The March 55 calls (YAACK, $0.35, down $0.50) are a possibility and might do for a rebound trade for next week. The April 55 calls (YAADK, $1.20, $0.40) are looking like candy and the market is the baby. In other words, I really like them.
As far as Amgen continuing its drop…it could. There is real solid support at $47-$48 and I would think Amgen could hold these levels. If not, then we could be in trouble. However, given the huge discount we got this week on one of the best names in biotech, I think the call options will do well.
Rick Rouse
Rick@OptionsMentoring.com
Swimming With the Sharks
Tuesday, October 7th, 2008
It seems that McDonald’s (MCD, $57.24, up $0.09) has gone on sale again. I may be a little early in saying this but I’ve been telling you that we are going bargain hunting. I know it may be hard to “go long” in a market like this but we are going in with a plan. While I still believe that there could be more downside risk, we are going to try and buy some quality names at discount prices.
There is a couple of ways to play McDonald’s and here is how I’m approaching it. For the near-term, I’m looking at the November 65 calls (MCDKM, $0.90, down $0.05) which you can buy for $100 a contract. If you normally buy 10 option contracts, buy only five in case we have to leverage down. In other words, take only a half position.
I’m also looking at the in-the-money March 55 calls (MCDCK, $6.80, up $0.10) which gives me six months to ride out the current market storm. One contract would cost roughly $700 and if McDonald’s can get back to $67 (its 52-week high) by March these calls will be worth at least $12-$13 a contract. Good enough for a double.
There are other quality companies going on sale right now so stay tuned…
Rick Rouse
Rick@OptionsMentoring.com
Tags: March call options, McDonald's, November call options
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