Jazz Pharmaceuticals (JAZZ) – A Pharma Stock on a Tear

This week we are looking at another of the Investor’s Business Daily (IBD) Top 50 List companies.  We use this list in one of our options portfolios to spot outperforming stocks and place option spreads that take advantage of the momentum.

Recent media coverage suggests Jazz Pharmaceuticals is a stock that investors certainly want to own. Check out what these two articles have to say about it – Hedge Funds Got Back Into Jazz Pharmaceuticals plc and  Two stocks I’d tuck away forever: Jazz Pharmaceuticals plc (JAZZ), HollyFrontier Corporation (HFC).

Technicals

JAZZ is showing a textbook technical breakout. The stock traded between roughly $115 and $145 for most of the year before finally breaking higher in November. The $145 price point offered major resistance in April and July and is now seen as support. In fact, a dip toward the level in the past week was promptly bought up, offering some confirmation that buyers do view the level as support. Further, the upward momentum from the October low is unusually strong which also confirms the outlook of a technical breakout.

JAZZ Chart December 2019

If you agree there’s further upside ahead for JAZZ, consider this trade which is a bet that the stock will continue to advance over the next six weeks, or at least a little bit.

Buy To Open JAZZ 17JAN20 145 Puts (JAZZ200117P145)
Sell To Open JAZZ 17JAN20 150 Puts (JAZZ200117P150) for a credit of $2.18 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when JAZZ was trading near $149.  Unless the stock rallies quickly from here, you should be able to get close to this amount.

Your commission on this trade will only be $1.30 per spread.  Each contract would then yield $216.70 and your broker would charge a $500 maintenance fee, making your investment $283.30 ($500 – $216.70).  If JAZZ closes at any price above $150 on January 17, both options would expire worthless, and your return on the spread would be 76% (711% annualized).

Changes to Investor’s Business Daily (IBD) Top 50 This Week:

IBD Underlying Updates December 7, 2019

We have found that the Investor’s Business Daily Top 50 List has been a reliable source of stocks that are likely to move higher in the short run.  Recent additions to the list might be particularly good choices for this strategy, and deletions might be good indicators for exiting a position that you might already have on that stock.

As with all investments, you should only make option trades with money that you can truly afford to lose.

Happy trading,

Terry