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
OPTIONS DISCLAIMER: Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options. Copies of this document may be obtained from your broker, from any exchange on which options are traded or by contacting The Options Clearing Corporation, email@example.com.[hana-code-insert name=’agora-article’ /]