In The Money with Fidelity Investments – 3/31/20: GILD XLU

by Dan April 1, 2020 8:55 am • InTheMoney• Trade Ideas

Yesterday in my In The Money series with Fidelity Investments we did a quick touch on the 20% bounce in the stock market since last Monday, March 23rd and discussed prior 20% rallies during the last two bear markets (2000-2003 & 2007 – 2009), my notes below:

Macro, address the bounce over the last week… discuss that 20% rallies off of lows are features, not bugs of bear markets:

2001 there were two 20% rallies off of a low, both failed.
2002 there were two 20% rallies off of a low, both failed…
The market bottomed in early 2003

In 2008 there were two 20% rallies off of a low, both failed.
The market bottomed in early 2009

We are up 20% from last Monday’s low after a 35% peak to trough decline. technical resistance looks like 2750-2800

Watch by clicking below:

Trade Idea: Gilead (GILD)

For the trade idea of the week, I detailed the positive developments on Gilead’s (GILD) attempts to find a vaccine for the coronavirus, with the recent expansion of trials of their remdesivir drug that has recently been expanded from “compassionate use” to “expanded access”. The stock has shown a technical re-awakening in 2020, and elevated options prices present an opportunity for near term bulls in the name, my notes:

The company hopes to present some data on a coronavirus theeaputics drug Remdesivir in the coming weeks.

The stock had been basing in the $60s for more than a year… stock recently broke out…

Options prices very elevated…

To express a bullish directional view; Sell put spreads, but do so with defined risk

Trade Idea: GILD ($75.50) Sell to Open the May 70 – 65 put spread at $2

-Sell to open 1 May 70 put at 4.25
-Buy to open 1 May 65 put for 2.25

Break-even on may expiration:
Profits of up to 2 if the stock is between 68 and 70 with max gain of 2 at or above 70
Losses of up to 3 between 68 and 65 with max loss of 3 at or below 65

Rationale: this trade idea is predicated on a bull view on GILD over the next 6 weeks that the stock will remain above $70, and that options premiums are too high, don’t even need the stock to go up to make money on this trade, just needs to settle in, even at lower levels.


Lookback: XLU June 50-60 Call Spread from March 24th:

-buy to open 1 June 50 call for 2.50

-sell to open 1 June 60 call at 25 cents

Now with the XLU at $56.50, this call spread is worth about $6 for a profit of $3.75. Given the fact the etf is through the mid-point of the spread, and with more than two months to expiration, it makes sense to take the profit and move on.