Pharma Stock Calls Could Double Fast

ABT and NVS hit notable highs in late July

Sep 11, 2019 at 2:03 PM
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The shares of Abbott Laboratories (NYSE:ABT) are up 25% year-over-year, thanks to several sharp bounces off their 140-day moving average. ABT stock is once again bouncing from this rising trendline following a short-lived pullback from its late-July record peak at $88.76 -- last seen up 1.2% at $84.24 -- and history suggests even more upside could be on the horizon for the biotech.

Specifically, the stock tested its 140-day moving average on Tuesday, which has proven to act as support over the past three years. According to Schaeffer's Quantitative Analyst Chris Prybal, in the seven other times ABT has pulled back to this trendline during this time frame, the shares were up 6%, on average, one month out, with 100% of the returns positive.

What's more, the stock's Schaeffer's Volatility Index (SVI) stands at 21%, near its two-year average of 20.3%. If the SVI holds steady around its two-year average over the next month, Prybal's modeling shows that an in-the-money ABT call option could potentially return 158% on another expected bounce off its 140-day trendline. In other words, prospective call buyers could more than double their money on a 6% gain in the underlying stock.

abt stock daily price chart on sept 11

Novartis AG (NYSE:NVS) stock gapped to a four-year high of $95 on July 18, after the pharmaceutical firm raised its full-year guidance following a strong second-quarter earnings report. The shares have since eased back from this peak to trade near their 140-day moving average, which, similar to ABT, has served as support in recent years.

Per Prybal's data, there have been five other times in the last three years NVS has pulled back to this trendline, resulting in an average one-month gain of 4.6%, with 80% of the returns positive. Another move of this magnitude would put Novartis stock near $93 by mid-October, based on its current perch at $88.81, up 0.3% today.

Additionally, NVS stock's SVI of 19% is perched near its two-year average of 16.4%. Data from Prybal points to an expected one-month return of 145% for an in-the-money Novartis call option on another rally off the 140-day moving average, should the security's SVI hold near its two-year average over the next 21 days.

nvs stock daily price chart on sept 11


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