Each week, I’ll give an overview of a stock and Licia Leslie will follow that up with a chart analysis the next day. Bill Griffo will chime in with macro analysis and Andrew Giovinazzi will then finish out the week with a volatility breakdown.
Have a stock YOU want us to review? Email my team here. – Mark
The market is showing no love for Pfizer (Ticker: PFE) since its incredible run after the development and launch of the Comirnaty Covid vaccine.
The stock doubled from $30 to $60 and has since fallen back to $40 and it may be time to jump back in.
Today, we’ll take a deeper dive and consider a bullish strategy at what may turn out to be the bottom of a higher long-term range for them.
PFE – Buying a Treasury Bill with Upside
With nearly a 4% dividend, PFE offers triple what most people earn on their cash deposits at a bank.
Except PFE has a market cap of $235 billion and $26 billion in free cash flow.
I think I would take my chances with PFE versus a government that, according to the Committee for a Responsible Federal Budget, is borrowing $6 billion a day.
Let’s Take a Look at their Option Positioning
The chart below shows the open interest for calls (orange bars) and puts (blue bars). This clearly shows where investors are willing to express support and resistance for the stock.
The key to using option positioning analysis to give you an edge is that as open interest builds at various strikes gamma, which is like a turbo booster for delta exposure will fuel momentum.
So, for PFE the larger orange bars (call positions) signal a bullish bias for the stock price if it can hold $40.
This is because as the price moves higher you have positive gamma at $45 and then $52 that could act as a magnate as momentum buyers jump on board.
PFE Charting Pattern
Notice the positive divergence, meaning a lower low in price but higher low in relative strength (RSI), that developed on the plunge into its purchase of Seagen Inc (Ticker: SGEN) in mid-March:
The stock is now attempting to clear the 50 dma,and we know there’s good support at the $40 level.
Morningstar has PFE’s fair value priced at $47 so a long position near $40 is a good risk/reward trade.
What’s The Trade?
I see two good choices …
- Buy a call spread on the next dip down to the $40 level
This is a good risk reward with the fair value price above at $47. You risk $1.5 to $2 to make $5+ by buying a $40/$45 May19 call spread on the next dip down …
- Sell a MAY19 $35/$40 put spread for a credit of $.65 – .$.70 on the next dip down and close the trade if you lose the credit so worst case you break-even on the trade.
I don’t see PFE going back to the $30 – $40 trading range it stayed in pre-Covid …
Now, whether I am right or wrong on that isn’t important.
This is a decent risk/reward trade with the probabilities on your side.
If you constantly put these types of trades on and manage the risk well you can stack profits consistently and build wealth over time.
That is the focus of Power Income Trader, my macro and option positioning focused product that has fueled a near 60% win rate with average returns at ~45% for the past year.
Call 1-888-872-3301 you are interested in learning how to deploy a disciplined consistently profitable trading process and gain exclusive access to every trade I do.
Live and Trade With Passion My Friends,
Griff