Biogen Idec Inc. (BIIB) did nothing unusual in producing a bull signal. It has been in an uptrend since July 2010, from $46.15, and in the current leg up since Nov. 9, 2012, from $134. The break beyond the 20-price channel on Tuesday carried BIIB once again into blue-sky territory, with an all-time high of $231.99.
This is BIIB's fourth bull signal since the present leg up began. The three prior bull signals were all profitable, producing an average yield of 8.6%.
BIIB has given 21 completed bull signals since the start of 2009, when the broad markets began recovering from the post-recession crash. Fourteen were profitable, for an average yield of 8.1%.
I chose BIIB from a wide selection (see "Wednesday's Prospects" posted last night). The list included some large-cap heavy hitters, but many were flawed. GS and CCE had only even odds of a profitable bull signal in their current trends, MTG was priced too low for options trading, and KBR had a chart a I didn't like. ALL (the symbol, not an emphatic everything) had extremely low implied volatility, which would have limited my potential profits.
BIIB, however, hit the sweet spot. Biogen Idec is a biotech company that focuses on drugs to treat neurological and autoimmune disorders and cancer.
I'll insert my usual pharmaceuticals warning here. Biotechs rely on two factors for success: The sometimes hit-and-miss path toward finding a useful drug, and the bureaucratic workings of the Food and Drug Administration. They are something other than free-market entrepreneurship, and that means the stock price can move dramatically with no prior warning.
Analysts are mildly positive about Bogen Idec's prospects, however. They come down collectively at a 10% enthusiasm rating, not particularly high but at least it's above zero.
The company reports sterling return on equity, at 25%, with low long-term debt, at 10% of equity. These figures combined are growth-stock territory by my definition.
It has been profitable in each of the last 12 quarters, with the most recent, the 1st quarter of 2013, setting a record high for the 12-quarter period. Earnings have surprised to the upside nine times,and to the downside, three.
Institutions own 93% of shares, and the price has been bid up considerably, as is to be expected in the midst of a long uptrend. It takes $9.67 in shares to control a dollar in sales.
BIIB on average trades 1.2 million shares a day and has an extremely wide selection strike prices for a stock at that level of liqudity. Open interest runs generally to the three figures, and the front-month at-the-money bid/ask spread on calls is low, at 3.8%.
Implied volatility is 36%, in the upper half of the six-month range.
Options are pricing in confidence that 68.2% of trades will fall between $204.39 and $251.58 over the next month, for a potential gain or loss of 10.4%, and between $216.65 and $239.32 over the next week.
Trading in options is lagging today, with calls running at 67% of their five-day average volume, and puts at 62%.
The fair-price zone on today's 30-minute chart runs from $226.55 to $229.98, encompassing 68.2% of transactions surrounding the most-traded price, $227.74. BIIB fell below the zone in the first hour of trading then retraced to the top of the zone. With two hours to go before the closing bell, BIIB is trading at about the most-traded level.
Biogen Idec next publishes earnings on July 22.
Decision for my account: I've opened a bull position on BIIB, structuring it as a vertical credit spread expiring in June, long the $220 put and short the $215 put. The position provides a 4% cushion of profit at expiration below the entry price. The potential yield at expiration is 23.6%.
References
My trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
At several points in my analysis I use the number 68.2%. This comes from statistics and refers to the one standard deviation boundaries, which are expected to contain 68.2% of whatever is being studied. Putting it another way, given an item (a trade or whatever), there is a 68.2% chance that it will appear within those boundaries.
Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.
No comments:
Post a Comment