Pfizer Inc. (PFE): Pharma Stock Could Make Traders 122% on a Catch-up Rally

Rule Two: Buy more time until expiration than you may need — at least three to six months — for the trade to develop.

Time is an investor’s greatest asset when you have completely limited the exposure risks. Traders often do not buy enough time for the trade to achieve profitable results. Nothing is more frustrating than being right about a move only after the option has expired.

With these rules in mind, I would recommend the Pfizer Inc. (NYSE:PFE) Jan 2015 25 Calls at $4.50 or less.

A close below $27 in PFE on a weekly basis or the loss of half of the option’s premium would trigger an exit. If you do not use a stop, the maximum loss is still limited to the $450 or less paid per option contract. The upside, on the other hand, is unlimited. And the January 2015 options give the bull trend a year and a half to develop. (The January 2014 $25 calls are currently trading for about $4, which means we’re only paying $0.50 more for an extra year’s worth of time.)

This trade breaks even at $29.50 ($25 strike plus $4.50 options premium). That is less than $1 above Pfizer Inc. (NYSE:PFE)’s current price. If shares hit the breakout target of $35, then the call options would have $10 of intrinsic value and deliver a gain of more than 100%.

Recommended Trade Setup:

— Buy PFE Jan 2015 25 Calls at $4.50 or less
— Set stop-loss at $2.25
— Set initial price target at $10 for a potential 122% gain in 18 months

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