Back to top

Cook`s Kitchen

I have a watchlist of biotech stocks that I like to trade. It's a mix of developed companies with strong drug pipelines and small caps with that lottery ticket potential. Here are some of my favorite names, shown with their market capitalizations from biggest to smallest...

Gilead Sciences (GILD - Analyst Report) $31.6 B

Celgene (CELG - Analyst Report) $29.4 B

Biogen Idec (BIIB - Analyst Report) $27.6B

Quest Diagnostics (DGX - Analyst Report) $8.8 B

Cubist Pharmaceuticals (CBST - Analyst Report) $2.3 B

Myriad Genetics (MYGN) $1.8 B

Raptor Pharmaceutical (RPTP) $233 M

Progenics Pharmaceuticals (PGNX) $210 M

Transcept Pharmaceuticals (TSPT) $114 M

I see one opportunity I want to trade right now. I want to buy Celgene anywhere near the 50-day moving average at $63. I just missed the dip earlier this week below $63.

So my strategy today is to create a synthetic long strategy using options. I am buying the January 62.5 call for $4.00 and selling the January 65 put for $4.15, for a net credit of 15 cents with the stock trading around $63.50 this morning.

This position makes me long the stock from below $62.50 until January, since I had to pay no cash for the call. But since I sold the 65 put, which is another way of going long stock, I have to post $6,500 in cash to secure my obligation.

And if CELG is below $65 anytime up until expiration, I could be assigned and forced to buy the stock at that price. For this reason, you want to treat a naked put position like this as if you are long from the strike price of the put. It has all the same risk as being long the stock already.

A slightly more conservative trade would have been to sell the 60 put and buy the 65 call. This would give me a little more room not to be assigned on the put and could have been done this morning for about a 30 cent debit. But my profit potential would have suffered and I might as well just buy the stock for $63.50 since the capital requirement is nearly the same (depending on your margin account privileges).

And if you want a better edge on a CELG trade, you should wait and see if it pulls back to $60. But I'm confident about CELG moving higher from here because the earnings growth and rising estimates, plus the technical price strength, give me an edge at this pullback level that I like.

If CELG can continue its multi-year breakout above $65 on this momentum, we should see $70 by early January. Stay tuned for opportunities in the other biotech names on my hitlist.

Kevin Cook is a Senior Stock Strategist with

Please login to or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research


Are you a new Zacks Member or a visitor to

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
UTD THERAPE… UTHR 117.83 +28.51%
TRIQUINT SE… TQNT 20.67 +6.52%
RF MICRO DE… RFMD 12.47 +6.04%
VASCO DATA… VDSI 14.77 +4.68%
BANCO DO BR… BDORY 15.53 +3.95%