As a sense of uncertainty continues to pervade the general market, it comes increasingly important that we take measured risks in our options trading activities. We can afford to be wrong when we trade stocks because while the value of our position in the stock can be eroded, the volume of our ownership in the company will remain intact. However, when trading options, we cannot afford to be wrong (on more occasions than we are right) because options trading is usually an all-or-nothing affair in which we can lose the premium paid to acquire the contract.
It is with the mindset of placing more winning option trades that we start exploring the options of Gilead Sciences (NASDAQ:GILD). Gilead with its market capitalization of $158.15B is a research-based biopharmaceutical company that discovers, develops and commercializes medicines. Gilead’s primary areas of focus include human immunodeficiency virus (HIV)/AIDS, liver diseases, such as hepatitis B and C and cardiovascular/metabolic and respiratory conditions.
Impressive Performance so Far
The chart above shows how shares of Gilead Sciences have traded within the last one year. The stock is up an impressive 70.49% from a 52-week low of $58.81 to a 52-week high of $110.64 within the last one year. In the year-to-date period, shares of Gilead Science are up 40.23% and the stock is up 45.51% in the last six months. Gilead maintained its winning streak with a 20.51% gain in the last 3 months and the stock is up 1.26% to $105.60 as at 11:32AM EDT today.
Blockbuster Status in Sovaldi
It is somewhat difficult to advance a singular reason why shares of Gilead Sciences have been soaring within the last one year. In recent times, shares of Gilead have benefitted from the successful launch and impressive sales of Gilead’s breakthrough hepatitis C drug, Sovaldi.
SOVALDI is a once-a-day prescription medicine that is used with other antiviral medicines to treat chronic (lasting a long time) hepatitis C (Hep C) infection in adults. It is estimated that about 3 million people are infected with Hepatitis C in the United States and that about 85% of the infected people will experience its chronic effects.
Any extremely popular drug that generates annual sales of at least $1 billion is traditionally considered a blockbuster drug and Sovaldi conveniently embodies this definition. In fact, Gilead reports that their Sovaldi sale in the first half of this year is about $5.8B.
With a $1000 per pill price tag to put the cost of the 12 weeks of treatment around $84,000, Sovaldi is set to remain a blockbuster drug as it outperforms its closest rivals in efficacy and sales. More so, Gilead has licensed (on which they will pay a royalty) some 12 companies to manufacture the generic version of Sovaldi for sale in developing markets. Hence, the revenue that Gilead will generate from Sovaldi sales is practically guaranteed because Gilead has strategically eliminated competition from the manufacturers of generic drugs.
How to Trade GILD Options
There is no sense in standing against the bullish momentum in the stock and options of Gilead Sciences; hence, I am buying GILD calls immediately. The GILD Jan 15, Feb 15 and March 15 call options are looking attractive and you will be hard pressed to see any option in-the-red on GILD option chains. I am buying 10 contracts of the GILD Feb 2015 110.000 call (GILD150220C00110000) at an asking price of $7.90.
— Daily Option Alerts