Why I sold Biogen-Idec (BIIB) LEAPS options when the charts are so bullish

I just sold my Biogen-Idec (BIIB) January 2010 $70 strike price call options (LEAPS) even though the bullish price objective on the $70 stock is $106.

The reason is simple. First, I had a 161% profit on the trade. In the past,  I’ve let such gains whither away, and I just decided not to be too greedy.

Second, Barrononline.com today published a commentary by analysts from Robert W. Baird & Co. They expressed concerns about the long-term outlook for BIIB’s products and the chances they will see new competitors. And with the stock at about $70, their new target price is $67. They conclude:

Management measurably raised its fiscal year 2008 outlook, and now guides to revenue growth in the mid-20% range (up from 20%), and non-generally accepted accounting principle EPS at or above $3.50 (up from $3.25-$3.45).

Consequently, we are raising our numbers and price target on Biogen shares. We now model EPS of $3.57, $4.15, $4.40 and $4.60 for fiscal 2008 to 2011, respectively; and derive a new $67 price target by applying a 17 times multiple to our 2009 EPS estimate, discounted back by 15% per year.

While we are raising our numbers, we continue to think that Avonex and Tysabri may face competitive pressure on multiple fronts from developmental multiple-sclerosis agents in the longer term.

Third, Morningstar.com says the stock is fairly valued and estimates its fair value is about $73.

I was fortunate to buy my BIIB leaps near last fall’s low. This happened after the stock plunged on news that BIIB wasn’t going to be acquired. I had a covered call position on at the time and was looking at big loss. So I held on to the stock, which I recently sold, and bought the January 2010 call options because I thought the sell off was way over done. And I let the calls I had sold short expire out of the money.

This time my recovery move worked. I was lucky, I think.

BIIB’s charts are here. It looks like a good momentum play, but be aware of the target prices that the pros have set for the stock. This looks like a swing trade to me, not a long-term investment.

I don’t own BIIB

For educational purposes only. Investigate before you speculate.

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