January 6th, 2022

Is Biogen A Buy Or A Sell?

Here we are and the first trading week of 2023 is nearly behind us. And so far, we’ve experienced more of the same. And this chart explains it. We’re now trading in the upper half of a range that was traded back in September and October.

bearish credit spread

I view that as good news because there’s enough bad news out there that could sink the markets, but they’re actually stable, even though the intraday whipsaws are annoying. A non-directional trade on the SPY between 375 and 390 would work nicely here. The question is where are we likely to break – to the upside or the downside?

With earnings season coming up, I think we’re going to see companies announce horrible outlooks and the market will fall from here. Then during the next round of earnings, we will have companies beat the low expectations set during this earnings season.

Here’s a weekly chart of the SPY and it’s showing us that it doesn’t care that the calendar flipped to the new year – we’re getting more of the same.

bearish credit spread

If we have a period of lower highs and lower lows, that means our next lower low could come in around 340. That would be about a 10% drop from here.

The good news is that if we can somehow turn around from here, that would mean we’d be connecting higher lows (from October to now).

I could be wrong about where we go from here and when a pivot might take place, but it’s important to remember that the stagflation of the 1970s and sky-high interest rates of the early 1980s eventually gave way to the strong economic growth and market rally of the 1980s. Substantial market gains followed the dot-com bubble burst of the early 2000s into the mid-2000s. The financial crisis, which remains the most dire economic situation we’ve experienced in modern market history, was followed by strong rallies in the years that followed. Not even the worst global pandemic in over 100 years could result in sustainably lower asset prices.

Let’s see what trade ideas we can find without getting caught up in the earnings season that is set to kick off in a few weeks with the big banks.

Today’s trade ideas are in the specialty retail industry.

I have a bearish credit spread idea for you today. Biogen (BIIB). The market reacted positively after the October earnings report and it marched up to a high of $311.88.

bearish credit spread

It’s been heading lower since the beginning of December and doesn’t look to change course.

The 17 FEB expiration (right side of the picture above) is offering an interesting spread we can look to trade.

-1 17 FEB 310 call
+1 17 FEB 315 call
Net credit: 1.60
Max Loss: 3.40

Exit rule: profit target range 25-50% of the credit received. An $80 profit (50% of the credit received) would be a 22% return on risk. If the stock stays at the same price, the spread should still decay by 50% by 1/27/23.

Stop loss: If the stock trades higher than 310, which would be an approximate $215 loss if that happened today. The amount of the loss will decrease with each passing day as the purple profit line gets closer to the teal expiration line.

bearish credit spread

What do you think? Am I wrong about BIIB? Is it heading up from here? Is it going to retest its recent high by the end of February? Let me know!

If you have any questions, comments, or anything we can help with, reach us at any time.
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Jeff Wood

Editor, Filthy Rich Dirt Poor

Trader, Options Testing Lab

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