Alan Knuckman's Teva Trade

Speaking on Bloomberg Markets, Alan Knuckman shared with the viewers a bullish options strategy in Teva Pharmaceutical Industries Ltd (ADR) TEVA.

The stock dropped 40 percent in the last year, but Knuckman sees some bullish signs. He explained that Teva is making new lows, but it's not making new highs in volatility. That is called a bullish divergence and it's often a sign the sellers are getting tired.

Knuckman added that the current administration in Washington is talking about cutting drugs cost and the best way to do that is with more generic drugs in the pipeline. He sees that as a good sign for Teva.

To make a bullish bet, Knuckman wants to buy the January 27.50 calls for $6. The trade breaks even at $33.50 or 4.39 percent above the current market price.