Strategy: Call Spread
Buffer to strike: 36.11%
Max risk: 5% of account
Price at entry: 45.92
Short strike: 62.5 @ +$0.52
Long strike: 65 @ -$0.04
Min contracts: 2
Company description: Mylan is a pharmaceuticals company that runs pharmaceutical ingredient manufacturing facilities. They also run a specialty business that is focused on respiratory, allergy and psychiatric therapies. Basically it’s a biotech company.
Implied volatility and probability: IV for this trade at entry was about 38% with a probability of success sitting above 99% for the 62.5 strike.
Support and resistance: The main resistance level will be at the 55 mark and then again at the 58 level. Within the current trading range, the stock will need to break through the 48 resistance first before it cant make at attempt at 55.
Exit strategy: Ideally the trade will stay below the 62.5 level until expiry and close out worthless, thereby giving us the maximum return. If the price shoots up to the 55 level all of a sudden or the fundamentals of the company change drastically then I will close this out before expiry. If the stock closes above the 58 level I will need close it out.
News and thoughts: This trade almost looks perfect, strong and clearly defined resistance levels with a huge buffer to strike and plenty of yield. Biotech companies tend to be fairly volatile though so there does need to be abit of caution, thus the reason for doing a spread instead of running a naked position. There is nothing really that interesting in the news for MYL except for general healthcare performance news. Really can’t see anything wrong or concerning with this trade.