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