Allergan (NYSE:AGN) is a global healthcare company that develops and commercializes specialty pharmaceutical products for the ophthalmic, neurological, dermatological and other specialty markets. The company operates in specialty pharmaceutical research, targeting products and technologies related to specific disease areas such as glaucoma, retinal disease, dry eye, psoriasis, acne and movement disorders. In addition, it develops and markets aesthetic-related pharmaceuticals and over-the-counter products. Allergan also focuses on research and development efforts on new therapeutic areas, including gastroenterology, neuropathic pain and various types of cancer.
This candidate emerged in a scan of (relatively) range-bound issues with viable spread premiums. The position is not based on any fundamentals, but rather a simple technical assessment that suggests the issue has a high probability of remaining within a profitable range. There are no major events expected prior to options expiration, however a (mechanical) loss-limiting order is recommended as the stock has demonstrated a potential for volatility in the past. Readers should target a minimum credit of $0.40 to open the position.
PLAY (conservative - bearish/credit spread):
BUY CALL APR-85.00 AGN-DQ OI=513 ASK=$0.15
SELL CALL APR-80.00 AGN-DP OI=773 BID=$0.50
INITIAL "NET-CREDIT" TARGET = $0.40-$0.45
POTENTIAL PROFIT (X 5 contracts) = $200
RETURN ON INVESTMENT (max) = 8%
COST BASIS = $80.40
LOSS-LIMIT/EXIT POINT = $78.20 (cons) - $79.75 (aggr)