Update – AMGN Overlays

by CC October 26, 2017 3:38 pm • Trade Updates

Yesterday we preview Amgen’s (AMGN) earnings event that came last night. In the post we detailed two overlays for those long the stock, one was a hedge, using a call sale outside the expected move to finance the purchase of a put spread within the implied move. And a 1×2 call spread for leverage, targeting a move beyond the expected move.

With the stock down slighty let’s check in on those overlays and see how they did and if they need to be managed into tomorrow’s close. First, the Put Spread Collar:

The Oct27th weekly 185 call, 175/167.5 put spread for .55

With the stock near where the put spread would start offering decent protection, this is worth a little more than cost, around .70. The stock was much lower pre-open but found buyers today, erasing much of what the stock had lost overnight. This only protects until the close tomorrow so for those looking to continue protection beyond that it could be rolled out to November or beyond, perhaps with a lower strike to contain costs. It can obviously be taken off entirely for a slight gain on the hedge, or it can be left to see what happens tomorrow. It’s breakeven is 174.45, so any move below that tomorrow and the stock is completely protected, but again, only for one day.

The second overlay to look at was leverage to the upside:

The Oct27th weekly 182.5/185 1×2 call spread for even money

Obviously with the stock lower this is worthless but it didn’t cost anything. There’s no need to close this as it’s not at risk of anything bad happening to it. It can simply be left to expire worthless tomorrow. In this case, a simple over-write would have been better as it would mean collecting money on a stock down slightly, lessening the impact of the small move. The 1x2s are like an overwrite to the upside as they can add to a winning position, but they don’t do any good like an overwrite does if the stock doesn’t go higher.