Mike Khouw's Gilead Sciences Trade
CNBC Options Action's Mike Khouw talked on the show about the current risks that traders are facing in the biotech stocks.
He explained that many stocks in the space are trading at attractive relative valuation multiples, but have already recorded significant gains in a short time frame.
He believes that in this situation, the best way to trade these stocks is using options. He is currently watching Gilead Sciences(NASDAQ: GILD), which fits perfectly in the profile and he thinks that the stock is going higher.
Khouw is going to use options to make a bullish bet on Gilead. Specifically, he wants to buy the January 110 call for $7.70 and sell the January 130 call for $2.35. This trade would cost him $5.35, which sets breakeven at $115.35 and his maximal profit at $14.65. The net premium paid is the maximal loss for this trade and it amounts to five percent of the underlying.
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