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Dec 8, 2021

Pfizer Stock: How to Trade the Latest Price Action

By:James Blakeway

Shares in Pfizer (PFE) saw two-sided action this week after news surfaced that three doses of its Covid-19 vaccine show promising results against the Omicron variant.

Pfizer continues to outpace the S&P Healthcare Sector ETF (XLV), with returns almost double that of the sector.

Regarding trading opportunity, Pfizer now has an implied volatility rank of 73, with a raw implied volatility of 39%, more than twice that of the sector ETF.

Trader’s may be hesitant of picking a price direction in Pfizer given its meteoric rise this year and the possibility for major Covid media developments to jolt the stock one way or another. Options traders can overcome this analysis paralysis by utilizing strategies that could profit regardless of price direction.

How to Trade a Put Ratio Spread in PFE

Today’s Alpha Boost email from Quiet Foundation included two strategies that could fit this mentality. The first is a put ratio spread, combining one long put option with two short put options to create a position that is net bullish (positive delta) but could profit more from a fall in the stock price.

The 50 / 49 put ratio (buying the 50 put and selling two 49 puts) collects $104 in premium but could profit as much as $204 of the stock price falls to $49 by expiration. While the trade is short two put options, the long option at a higher strike creates a debit spread resulting in the net risk of only one put.

How to Trade a Put Broken Wing Butterfly in PFE

Similar to the ratio spread, the put broken wing butterfly could be profitable in all three scenarios of price direction. The butterfly adds another long put option, capping the risk on the trade.

This trade idea is the same as the ratio above but adds the purchase of the 46 put to make the maximum loss on the trade $161, while lowering the premium to $39 and the max profit to $139. Again, the maximum profit would only be realized if PFE is at $49 at January expiration.

Popular Healthcare Sector Stocks

Traders interested in other stocks related to vaccine treatments could look for opportunities in Covid-19 drug makers could look into Moderna (MRNA) or Merck (MRK) which respectively produce vaccines and antiviral drugs. It’s worth noting that Pfizer makes up 5.7% of the portfolio held by XLV, while Merck constitutes 3.6% and Moderna 1.9%.

Sign up for the Alpha Boost newsletter for more trade ideas sent directly to your inbox and check out the Follow Feed on tastyworks for the latest strategies from tastytrade co-hosts.

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

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