Eli Lilly (LLY), a steady grower if there ever was one, just went bonkers to the upside.
The stock is up some 16% in the past month, which is quite uncharacteristic given its typical demeanor.
Longtime followers of the medical space may recall LLY stock price once soared above $100 at the height of the internet bubble. It’s rocket-ship behavior over the past month is reminiscent of the hyper volatility of the ’90s bull.
If the recent momentum can keep up, perhaps the stock will tag the century mark once again.
On the technical front, LLY stock is firing on all cylinders. Accumulation days litter the landscape, dips are shallows, and momentum has been explosive. No doubt the pace in LLY will slow in the days ahead, but that doesn’t mean it can’t settle into a more sustainable trend and continue trucking.
With the stock already soaring 4% today those reticent to chase may consider waiting for a dip before climbing aboard.
Given the elevated excitement surrounding LLY stock of late, demand for its options has surged inflating premiums well above average levels. In fact, there has only been one instance of implied volatility rising higher than the current 29% over the past year. Traders can exploit the rich premiums by entering short option plays. Should volatility in LLY settle down in the coming weeks option prices will revert back to normal bringing profits to those short premium.
If you’re willing to bet LLY stock price remains above $77.50, consider selling the Aug $77.50/$72.50 put spread for 60 cents.
The maximum reward is limited to the initial 60-cent credit and will be pocketed provided the puts end up expiring out-of-the-money at August expiration. The maximum risk is limited to the distance between strikes minus the credit, or $4.40, and will be lost if LLY tumbles beneath the lower strike of $72.50.
Bear in mind you can always exit early to minimize the loss. I suggest jumping ship if LLY falls below the short put strike at $77.50; this should limit the loss to around $1.20 or so.
At the time of this writing Tyler Craig had no positions in any of the aforementioned securities.
