Back on October 30th we took a look at beaten up biotech Celgene (CELG) and detailed a defined risk call calendar positioning for a small bounce into year end, followed by the potential breakout/gap fill into 2017. Here was the original trade idea when the stock was trading $100:
Defined Risk Bullish
Buy CELG ($100) Dec / March 105 call calendar for $3.50
- Sell to open 1 Dec 105 call at $2.50
- Buy to open 1 March 105 call for $6
The stock bounced around a bit on November, but in the past few weeks is showing signs of getting off the mat. With the stock now 108 this trade is worth about 4.90 versus the original 3.50 at risk. It’s now above the 105 strike and that line only has about 0.40 left of extrinsic premium left to decay, so barring a move back towards 105 in the next few days (before Dec expiration) this is about maxed out profit wise for the next few days. In fact, if it continued higher in the next few days the profits would decrease.
Therefore, for trade management purposes the next step depends on the view out until March. If the bounce from 100 was the play and you’re happy with a small winner it can simply be closed at a profit this week. For those looking to extend the view out to March it may make sense to roll the short Dec 105 call out to the March 115 call, the roll is about even here and it would leave the original 3.50 at risk, but with profit potential up to 6.50 if the stock is at or above 115 in March. That call spread’s breakeven is just above where the stock is currently trading so it would serve as a defined risk bullish play, targeting 115 on the upside with 3.50 the max loss. It doesn’t book any of the current profits, it simply rolls them into that March call spread at about a 1.40 discount to where the spread is currently trading.