Puts and calls on drugs
Last week the market continued its uptrend and this is reflected in the current trend analysis, which remains positive for most equities. And so far, the market has offered few opportunities to jump on board at lower prices.
For example, for most of last week I had limit orders in place to sell puts on INTC, MSFT, ABT, ED, SBC, WFC, and VZ, but none were triggered even though several of the stocks traded at or near my short-term downside targets. Perhaps this coming week will prove more accommodating.
In the meantime, I sold June 25 covered calls on my long position in BMY. The drug stocks and pharmaceuticals have been pulling back lately, and BMY has been no exception. So I’ve now either locked in a profit (should the stock be above 25 at June expiration) or significantly reduced my risk if the stock declines.
On a similar note, on Friday I sold puts on Pfizer (PFE) as it sold off on reports of blindness in some Viagra users. While I normally prefer to focus on stocks that have been showing strong intermediate- and long-term performance, I also follow several beaten down “value” type stocks – like PFE and some of the other drugs, and telecoms – that (hopefully) have priced in most of the bad news and may offer limited downside risk.
While they may not go anywhere for a while, their dividend yields – and potential upside – make them attractive put-selling candidates. From a technical standpoint, I’m only interested in those that are showing some signs of bottoming (e.g., positive divergences and upside breakouts) and whose long-term (10-year) linear regression trendline is trending up. Along these same lines, I’m also watching Anheuser Busch (BUD), Newell Rubbermaid (NWL), and Coca Cola (KO).
