This Trade Targets a 100%-160% Potential Return by March 19

Option Trade Of The Day: GlaxoSmithKline (NYSE: GSK)

[hana-code-insert name=’adsense-article’ /]GlaxoSmithKline is one of the largest drug manufacturers in the world, but the company has struggled in recent years as earnings per share have declined by an average of 3% annually over the last three years as sales have been flat over that same time period.

This has caused the stock to struggle and meander between the $33 and $43 level.

The stock has rallied in the last six weeks and that has brought it up to the upper rail of a downward-sloped trendline and it is just below its 52-week moving average.

I look for those two aspects to act as resistance in the coming weeks.

I look for another down move in the stock similar to the ones we had last summer and last fall. Those two declines were 12% and almost 15%. A decline of 12% would take GSK down to the $34 range based on yesterday’s closing price of $38.69.

Buy to open the Mar18 40 strike puts on GSK at $2.30 or better. These options will expire on March 16. Based on the two previous declines and the losses incurred, a drop below $35 isn’t out of the question and it would put these options over a 100% gain and should the stock get all the way down to $34, these options would be at a gain of over 160% based on yesterday’s closing ask price of $2.25.

— Rick Pendergraft

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Rick Pendergraft, Trades Of The Day

Rick Pendergraft has been studying, trading, analyzing and writing about the investment markets for over 30 years. He has worked for some of the largest financial publishers in the world and he has been quoted in the Wall Street Journal, USA Today, the New York Times and the Washington Post. In addition, he has been interviewed on Bloomberg, CNBC and Fox Business News. Rick's analysis process includes fundamental, sentiment and technical analysis.