Gilead Sciences Stock Ripe for a Pre-Earnings Options Trade

The drug stock has tended to make outsized moves over the past year

Jul 16, 2018 at 12:46 PM
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Earnings season is kicking into high gear, with several blue chips on tap to report this week. Stocks have the tendency to make volatile moves after a company's earnings report, and those looking for a potential trading opportunity may want to consider hepatitis specialist Gilead Sciences, Inc. (NASDAQ:GILD), which has tended to exceed volatility expectations over the past year -- a boon to would-be premium buyers.

Taking a quick step back, GILD is scheduled to report second-quarter earnings after the market closes next Wednesday, July 25. Over the past eight quarters, the drug stock has averaged a single-session post-earnings move of 4.3%, regardless of direction. Overall, though, most of these reactions have been unfavorable, with six of those post-earnings returns being negative over the two-year time frame.

Those contemplating a pre-earnings options trade on GILD may want to consider a premium-buying strategy, such as a straddle. This is based on the stock's elevated Schaeffer's Volatility Scorecard (SVS) reading of 83, out of a possible 100. This means the equity has made outsized moves relative to what the options market has expected, looking back 12 months.

What's more, options on Gilead Sciences stock are relatively cheap at the moment, from a historical standpoint. The equity's Schaeffer's Volatility Index (SVI) was last seen at 28% -- in the 27th percentile of its annual range. In other words, short-term options are pricing in relatively low volatility expectations at the moment.

Looking at the charts, GILD shares have been trending higher since their May 3 annual low of $64.27, up 19%. Along the way, the stock filled its early May bear gap, and is now trading back above its 200-day moving average -- which served as support late last year. Nevertheless, the security is down 0.6% today at $76.98, after Leerink struck a cautious tone on biotech earnings, but said Gilead Sciences is in a strong position to beat estimates.

gild stock daily chart july 16


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