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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