For fundamental traders, beginning 2014 with a healthcare play may seem dicey considering that the sector outperformed last year. But from a technical perspective, Boston Scientific (BSX) could continue the stellar run up into the New Year.
Beginning 2013 just below $6 a share, BSX has climbed higher in $2 increments in a methodical stair-step pattern. Each push above technical resistance from $6 to $8 to $10 held the previous ceiling as solid price support.
The recent $10 to $12 range projects a move to $14 on an upside breakout through $12 resistance. The stock continues to test the upside of this range. Only a weekly close below $10 would negate the bullish bias. The $14 target is about 22% higher than recent prices, but traders who use a capital-preserving, stock substitution strategy could see a 100% return on a move to that level.
Trade Set-Up
- Buy BSX May 10 Calls at $2 or less
- Set stop-loss at $1
- Set initial price target at $4 for a potential 100% gain in five months
This trade breaks even at $12 ($10 strike plus $2 options premium). That is less than $1 away from BSX’s recent price. If shares hit the $14 target, then the call option would have $4 of intrinsic value and deliver a gain of 100%.
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