Getting Bullish on Gilead

The market is loving Gilead Sciences' (GILD) purchase of Kite Pharma (KITE) and bulls haven't let up the past three days. I don't think they are going to let up much in the near term, so I'm using the tepid weakness this morning to establish a bullish position via a risk reversal to either buy the stock lower or participate in the upside if it continues to shoot upward. 

I'm targeting October here, although November wouldn't be unattractive. The skew is actually a bit more favorable on the November setup; however, I'm more attracted to a shorter timeframe on this trade. The idea here is to sell an out-of-the-money put to fund an out-of-the-money call purchase. In this case, I've sold the October $80 put to purchase the October $85 call. This trade came with a cost of $31, but I'd be all right with $50 or less. If Gilead falls under $80, then I'll be obligated to buy the stock at $80. With my cost of $31 to enter, it will put my cost basis at $80.31, which looks like a bargain now. If Gilead moves higher, but does not get over $85 and I hold until expiration, then I'll lose my $31. Chances are I'll look to take profits or adjust to a call spread if we move higher and I can shift to a breakeven setup above $80 with some upside still possible. ...60 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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