Signal Says Pharmaceutical Stock Has Room to Run

The equity already sports a 24% year-over-year lead

Digital Content Manager
Nov 17, 2020 at 2:12 PM
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The shares of Eli Lilly And Co (NYSE:LLY) are up 0.6% at $141.34 at last check. Longer term, the stock has been cooling off from its July 9, all-time-high of $170.75, and just yesterday night received a price-target cut from Mizuho to $156 from $164. However, traders shouldn't look away from the pharma giant just yet, as the the stock's recent pullback is near a historically bullish trendline.

More specifically, Eli Lilly stock just came within one standard deviation of its 320-day moving average, after spending several weeks above this trendline. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, four similar signals have occurred during the past three years. One month later, LLY enjoyed a 5.1% gain, 100% of the time. From its current perch, a move of similar magnitude would put the security above the $148 mark.


Also worth noting, traders are leaning bearish in the options pits. Should this pessimistic sentiment begin to unwind, it could send the equity even higher. This is per the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.26, which sits higher than 77% of readings from the past year and suggests short-term option traders have rarely been more put-biased.

Now looks like a great opportunity to take advantage of LLY's next move with options. The security's Schaeffer's Volatility Index (SVI) of 33% sits in the relatively low 26th percentile of its annual range. This means the stock is currently sporting attractively priced premiums. 

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