On the heels of an announcement the company would no longer actively lobby for Cervical Cancer Vaccine Laws, Merck (MRK) announced it is raising its first quarter earnings estimates.
Audio Podcast:
An audio podcast of this article is available at: poweropt.com/podcasts/2007_03_01_Drugmakers.mp3
Conservative groups opposed the campaign to promote the cervical cancer vaccine Gardasil because, in their view, it would encourage premarital sex and would limit a parents control over their children. Approximately 20 states have begun the legislative process to mandate the vaccine.
Merck raised its earnings estimates from $0.59 a share to a range between $0.63 and $0.67 a share. The news sent shares up 2.25%, or $0.97, in heavy trading today.
The reasons for rise in the estimate included a regulatory hiccup for a competing diabetes drug from competitor Novartis (NVS) and the success of the aforementioned Gardasil.
Option Outlook:
This news may give some investors a positive view of Merck in the near-term. Earlier this week, Citigroup upgraded Merck to buy from hold.
Another possibility is Bristol-Myers Squibb (BMY), who was just freed from a one-year legal entanglement over its popular blood-thinning drug, Plavix.
Both of these companies may be a good fit for a covered call investment strategy. For the covered calls strategy, an investor sells call options in proportion to the number of shares owned. As long as an option remains out-of-the-money the option expires, and the investor can continue to write call options on the stock as long as the options continue to expire worthless. One of the major upsides of the covered calls technique is a stock can slightly decrease in value and an investor can still make money. This can be measured by the amount of downside protection the position has. One disadvantage of this technique is the potential profit the investor can make, should the stock rise precipitously, is limited. This is often referred to as the percent if assigned or the percent profit if the stock is above the call option strike price on expiration day.
Competitors:
Competitors for BMY include: Merck & Co. Inc. (MRK), Novartis AG (NVS), Pfizer Inc. (PFE), Abraxis BioScience (ABBI), Acusphere Inc. (ACUS), AVI BioPharma Inc. (AVII), Biogen Idec Inc. (BIIB), Celgene Corp. (CELG), Cell Therapeutics Inc. (CTIC), Depomed Inc. (DEPO), Genenntech Inc. (DNA), Gilead Sciences Inc. (GILD), Incyte Pharma. Inc. (INCY), Keryx Biopharmaceuticals Inc. (KERX), Kos Pharmaceuticals Inc (KOSP), MedImmune Inc. (MEDI), NeoPharm Inc. (NEOL), Panacos Pharmaceuticals Inc. (PANC), Polymedica Corp. (PLMD), POZEN Inc. (POZN), Sonus Pharmaceuticals Inc. (SNUS), Spectrum Pharma. Inc. (SPPI), SuperGen Inc (SUPG), and Vertex Pharma. Inc. (VRTX).
Competitors for MRK include: Bristol-Myers Squibb Co. (BMY), Pfizer Inc. (PFE), Sanofi-Aventis (SNY), Abbott Labs (ABT), AstraZeneca plc (AZN), Cardiome Pharma Corp. (CRME), CV Theraputics Inc. (CVTX), Dynavax Technologies Corp. (DVAX), GTx Inc. (GTXI), Hythiam Inc. (HYTM), Johnson & Johnson (JNJ), Keryx Biopharmaceuticals Inc. (KERX), Kos Pharmaceuticals Inc (KOSP), NPS Pharma. Inc. (NPSP), Novartis AG (NVS), Sangamo Biosciences Inc. (SGMO), Trimeris Inc. (TRMS), and Watson Pharma. Inc. (WPI).
Potential Trades:
All of the following option trades have 50 days until expiration. Merck & Co. is currently trading at $43.99 and Bristol-Myers Squibb is currently trading at $26.64. These trades were discovered using the powerful suite of option search tools found at PowerOptions.
| Covered Call – Merck & Co. Inc. (MRK) $ 43.99 (50) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| OPTION | Strike Info |
Opt Bid |
% Dnsd. Prot. |
% If Unch. |
% If Asgnd |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| MRKDV | 07 APR $42.5 | $2.20 | 5.00% | 1.70% | 1.70% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Covered Call – Bristol-Myers Squibb Co. (BMY) $ 26.64 (50) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| OPTION | Strike Info |
Opt Bid |
% Dnsd. Prot. |
% If Unch. |
% If Asgnd |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BMYDY | 07 APR $27.5 | $0.60 | 2.30% | 2.30% | 5.60% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The Merck covered call trade, an in the money covered call, offers 5.0% downside protection and a potential profit of 1.7% if the stock remains unchanged, rises, or decreases in value less than $1.44. The break-even price of this trade is $41.79. The net cost of this trade, per 100 options, is $4,179.00.
The Bristol-Myers covered call trade, an out of the money covered call, offers 2.3% downside protection and a potential profit of 2.3% if the stock remains unchanged. If the stock rises above the $27.50 option strike price, the potential profit becomes 5.6%. The break-even price of this trade is $26.04. The net cost of this trade, per 100 options, is $2,604.00.
For more information about how to identify and research great option trades, visit the PowerOptions website. There you will find the data you need to make quick, clear, and informed decisions. You can trade knowing you have found the best investment. Also, PowerOptions will allow you, with a few quick clicks, to quickly and accurately compare trades. PowerOptions‘ premium customer support is second to none in the industry. They can be easily contacted when you need them at their toll-free number to answer customer questions. Call them now toll free at 877-992-7971.
PowerOptions provides a free 14-day trial of its service. So join PowerOptions today, and you too can start reaping the benefits of the covered call investment strategy.
PowerOptions‘ sister company PowerOptionsApplied provides expert stock option trading recommendations. PowerOptionsApplied specializes in covered calls, naked puts and iron condor stock options strategy recommendations. PowerOptionsApplied provides a 30-day risk free trial of its service.
[tags] Gardasil, Citigroup, Plavix, ABBI, Abraxis BioScience, ABT, Abbott Labs, ACUS, Acusphere Inc., AVII, AVI BioPharma Inc., AZN, AstraZeneca plc, BIIB, Biogen Idec Inc., BMY, Bristol-Myers Squibb Co., CELG, Celgene Corp., CRME, Cardiome Pharma Corp., CTIC, Cell Therapeutics Inc., CVTX, CV Theraputics Inc., DEPO, Depomed Inc., DNA, Genenntech Inc., DVAX, Dynavax Technologies Corp., GILD, Gilead Sciences Inc., GTXI, GTx Inc., HYTM, Hythiam Inc., INCY, Incyte Pharma. Inc., JNJ, Johnson & Johnson, KERX, Keryx Biopharmaceuticals Inc., MEDI, MedImmune Inc., MRK, Merck & Co. Inc., NEOL, NeoPharm Inc., NPSP, NPS Pharma. Inc., NVS, Novartis AG, PANC, Panacos Pharmaceuticals Inc., PFE, Pfizer Inc., PLMD, Polymedica Corp., POZN, POZEN Inc., SGMO, Sangamo Biosciences Inc., SNUS, Sonus Pharmaceuticals Inc., SNY, Sanofi-Synthelabo, SPPI, Spectrum Pharma. Inc., SUPG, SuperGen Inc, TRMS, Trimeris Inc., VRTX, Vertex Pharma. Inc., WPI, Watson Pharma. Inc., covered call investment strategy, investment strategy, iron condor, poweroptions, stock option trading, stock options [/tags]