Gilead Sciences (GILD) is currently showing above average volatility with an IV Percentile of 95% and an IV Rank of 70.73%.

GILD rates as a Strong Buy according to 18 analysts with 1 Moderate Buy and 9 Hold ratings. 

The stock has been trading between 95 and 120 for the last few months.

COMPANY DETAILS

Gilead Sciences is a pioneer in developing drugs for the treatment of human immunodeficiency virus, liver diseases, hematology/oncology diseases and inflammation/respiratory diseases.

The company has a strong HIV franchise with key HIV/AIDS therapies like tenofovir alafenamide based products - Genvoya, Odefsey, Descovy, Biktarvy and Truvada.

The portfolio also includes hepatitis C virus drugs like Harvoni and Epclusa and HBV drug.

The first cell therapy approved for the treatment of adult patients with relapsed or refractory large B-cell lymphoma, has diversified Gilead's portfolio.

Tecartus, another CAR T-cell therapy, was granted an accelerated approval in the United States for the treatment of relapsed or refractory mantle cell lymphoma.

The company is also working on diversifying and growing its business beyond antivirals into other therapeutic areas. 

Gilead is also making inroads in the oncology space with strategic collaborations and acquisitions.

Today, we’re going to look at a short strangle trade due to the high IV percentile, that will profit if Gilead stays between 95 and 125 for the next two months.

A short strangle aims to profit from a drop in implied volatility, with the stock staying within an expected range.

When implied volatility is high, the wider the expected range becomes.

The maximum profit for a short strangle is limited to the premium received while the maximum potential loss is unlimited. For this reason, the strategy is not suitable for beginners.

GILD SHORT STRANGLE

Traders that think GILD stock might remain stable over the next few MONTHS could look at a short strangle.

As a reminder, a short strangle is a combination of an out-of-the-money short put and an out-of-the-money short call.

The idea with the trade is to profit from time decay while expecting that the stock will not move too much in either direction.

For GILD stock, an August 15 put with a strike price of $95 could be sold for around $2.30.

Then the short call, placed at the $125 strike, could be sold for around $1.65.

In total, the short strangle will generate around $3.95 per contract or $395 of premium.

The profit zone ranges between $91.05 and $128.95. This can be calculated by taking the short strikes and adding or subtracting the premium received.

If price action stabilizes, then short strangles will work well. However, if GILD stock makes a bigger than expected move, the trade will suffer losses.

Note that GILD is due to report earnings in early August, so this trade would have earnings risk if held to expiration. 

The expected move for the August 15 expiration is currently $97.43 – $121.23

Conclusion And Risk Management

One way to set a stop loss for a short strangle is based on the premium received. In this case, we received $395, so we could set a stop loss equal to the premium received, or a loss of around $395.

Another way to manage the trade is to set a point on the chart where the trade will be adjusted or closed. That could be around $100 on the downside and $120 on the upside.

As this trade encompasses earnings, there is a chance the stock could gap above or below those points.

Please remember that options are risky, and investors can lose 100% of their investment. 

This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.