If entering 2020 I told you were going to have a global pandemic and that Pfizer (NYSE:PFE) would be one of the first companies to bring a highly effective vaccine to market in record time, what would you guess its share price would be up? Double digits? Surely PFE stock would at least beat the S&P 500 index with that type of goodwill tailwind.
While itâ€™s true the drug giant did see a slight boost in late-November, prices have since come right back down amid heavy profit-taking. And now, here we are back to unchanged on the year. Meanwhile, the S&P 500 is up 14%, and the Nasdaq Composite index is up 45%.
So much for outperformance. Pfizer shareholders didnâ€™t even get market returns.
Despite all the potential for a banner year, PFE stock is set to close 2020 much like it began â€” as a sleepy, steady dividend payer.
Rather than being dissatisfied by its lack of momentum or its inability to join growth stocks in their flight, I suggest accepting Pfizer for the slow-moving stock that it is. Celebrate its juicy 4.19% dividend yield. And, if you must get clever, then look for outperformance through selling puts and covered calls. These so-called stock enhancement strategies have worked like a charm this year.
After taking a closer look at the price chart, Iâ€™ll share just such a return boosting strategy that looks ready for deployment right now.
PFE Stock Charts
Consider the five-year weekly chart for context on Pfizerâ€™s history of stability and payment through cash flow. Despite multiple episodes of soaring and sinking, the stock has ultimately established a relatively steady climb. The 200-week moving average (green line) tells the tale. Its risen at a consistent incline from $28 to nearly $36.
Note how Novemberâ€™s failure to launch has created a retracement directly into a critical old resistance zone at $37. If PFE wants to maintain some bullishness, then we need to see this prior ceiling become a new floor. If it does, this should mark a low-risk entry point for new long trades. It also provides a second chance of sorts for those who missed the initial burst and think there may be another rally in the tank sometime in early-2021.
For more granularity, letâ€™s drill down to the daily chart.
As fantastic as Novemberâ€™s ascent was, weâ€™ve come full circle and are back to test the breakout point. The $37 zone also hosts the 50-day moving average, a popular gathering ground for dip buyers during uptrends. Breaching this level would certainly make a mess of the uptrend and require downgrading expectations. Even if it happened, though, I really like using todayâ€™s trade idea as the first step to building out a longer-term cash flow position.
Get Paid to Buy Shares
Implied volatility soared alongside last monthâ€™s price run, but itâ€™s since returned to earth. Still, at the 28th percentile, the implied volatility rank is one of the higher ones available in the market. If you combine that with the stockâ€™s bullish technical conditions and a desire to acquire shares at lower prices, then naked puts look compelling.
Naked Put Trade: Sell the Jan $36 puts for 70 cents.
By selling the put, you obligate yourself to buy 100 shares at $35.30 if the contract sits in-the-money at expiration. At that point, Iâ€™d consider selling covered calls to reduce your cost basis further. If Pfizer stock sits above $36 at expiration, however, the put will expire worthless, and youâ€™ll capture the initial 70 cents.
On the date of publication, Tyler Craig held a LONG position in PFE.
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