Stryker Corporation (NYSE:SYK) has our attention today as we round up a week of profitable options trading activity. Stryker with its market capitalization of $35.27B is a medical technology company.
The Company’s products include implants used in joint replacement and trauma surgeries; surgical equipment and surgical navigation systems; endoscopic and communications systems; patient handling and emergency medical equipment; neurosurgical, neurovascular and spinal devices; as well as other medical device products used in a variety of medical specialties. The Company’s products are marketed directly to doctors, hospitals and other healthcare facilities in the United States.
What’s Striking in Stryker Today?
I saw an exciting opportunity to make profitable trades on SYK options after the stock gained 0.49% to close at $93.57 yesterday. The chart below (with my annotations) shows how the shares of Stryker have traded within the last one year.
From the chart above, you’ll observe that the shares of Stryker Corp formed a rectangle between July and October 2014. The rectangle had the shares of Stryker trading between a $78 support and an $84 resistance as shown by the first green and red bars. Interestingly, a breakout (Blue Arrow) above the $84 resistance point saw the shares of Stryker rising to set up a new 52-week high at $98.24.
The shares of Stryker have established another rectangle starting from last December. The current rectangle has the shares of Stryker trading between a $90 support and a $93.57 resistance as shown by the second green and red bars.
A Potential Breakout or Breakdown
Stryker’s closing price of $93.57 from yesterday’s session is above the stock’s 50-day moving average of $93.12 and its 200-day moving average of $87.08; hence, we can safely project that the bullish momentum on the stock is strong. In addition, the stock has an RSI of 53.29, which indicates that the buy side is leading the trades on Stryker.
If the bullish momentum on Stryker continues, we can expect the stock to breakout to establish new highs based on its performance in the first rectangle. On the reverse side of the coin, the shares of Stryker might pullback and breakdown below $90 support.
Based on the aforementioned possibilities, you can enter long positions with SYK call options by selling covered calls for a pullback to $90 or buying SYK call options in anticipation of a breakout above $96. If you have bearish vibes on Stryker, (I don’t see this materializing) you might want to consider buying put options in anticipation of a breakdown below $90.
How to Trade SYK Options
Stryker is set to release its first quarter (Q1 2015) results on April 21 and we can expect the company to deliver an outperformance that could fuel the rally to new highs. For one, Stryker’s performance in the last quarter was decent as the company reported a 6.1% y-o-y improvement in revenue in line with estimates of $2.62B. In addition, the company reported fourth quarter earnings of $1.44 to miss the consensus estimate by a mere $0.01.
The company has strong balance sheet with debt of $3.3B in comparison to cash and investments of $5.0B as at December 2014. Hence, I am optimistic about the prospects of Stryker going forward and I recommend buying SYK call options. I am particularly interested in the SYK Jun 2015 92.500 call (SYK150619C00092500) at an asking price of $3.80.
— Daily Option Alerts