Note: Stay tuned at the end of this article for a bonus trade that could turn a 19% drop in today’s stock into 133% gains before year end. 

It is provided courtesy of options expert Jared Levy who has recommended trades that delivered annualized gains of 220%, 508%, even 2,201%. To learn more about his strategy or sign up to receive his trades each week, follow this link.

The biotech sector garnered headlines as it plunged this week, but big pharmaceuticals stocks were hit just as hard. Most have similar patterns to the broader market indices. In other words, they have renewed their downside breaks.

Bristol-Myers Squibb (NYSE: BMY) was one drug stock that bucked the trend in September with a much stronger rebound than its peers following the broader market’s breakdown in late August. While the pharmaceutical sector index formed a rising wedge pattern, which is typically bearish, from its late August lows, BMY scooted sharply higher.

The stock even managed to poke its head above both its 50-day and 200-day moving averages. Considering the total breakdown across most sectors of the market, that was rather impressive. 

But the good times ended abruptly with a bearish reversal on Sept. 21, the day presidential candidate Hillary Clinton tweeted she would release a plan to tackle rising drug prices the next day.

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Still, I believe the real driver for the decline was overall weakness as many market and sector indices broke down.

Regardless, this bearish reversal ended BMY’s defiance of its sector’s foibles on the charts. The stock could not hold above its major moving averages. As prices hit resistance set by the ragged bottom of the mid-2015 trading range, the bears took over. 

The next downside stop is the $57.50 area, not far below current trading. This marks the November and December lows, as well as the twin highs from January and March of 2014 (not shown on the chart), setting a nice floor for the stock. The rising trendline from November 2012 will also be in this area within a day or so. Recall that the broader market started a multimonth rally in November 2012, so this trendline is rather important.

Should this support level fail to hold — and given the overall weakness in the market it seems quite likely that it will — the downside objective would be much lower. A breakdown would target the trendline from the start of the bull market in 2008 in the $50 area. There is also horizontal chart support there from the trading range seen late last year. 

Recommended Trade Setup:

— Sell BMY short at the market price
— Set stop-loss at $66.50
— Set initial price target at $57.50 for a potential 7% gain in two weeks 
— Set secondary price target at $50 for a potential 19% gain in six weeks

This article was originally published on ProfitableTrading.com: Sell This Big Pharma Stock Now

Generate 133% From a 19% Stock Move 

Using options, we can amplify BMY’s decline into huge gains. Specifically, I recommend buying BMY Dec 67.50 Puts for $7.50 or less. 

The trade breaks even at $60 ($67.50 strike price minus $7.50 options premium), which is 2.8% below recent prices. 

If BMY hits Michael’s downside targets, you could earn between 33% and 133% before the year is out. 

Profit Amplifying Trade Setup: 

— Buy BMY Dec 67.50 Puts for $7.50 or less
— Set stop-loss at $3
— Set initial price target at $10 for a potential 33% gain
— Set secondary price target at $17.50 for a potential 133% gain in 13 weeks

Similar trades have made my Profit Amplifier subscribers gains of 34%, 41% and 69% in as little as four days. That probably sounds too good to be true, but it’s not. Allow me to prove it to you here.

Sincerely, 

Jared Levy
Chief Investment Strategist, Profit Amplifier