AstraZeneca Cannot Hold New Highs

A closely-watched showdown at the U.S. Supreme Court today will determine whether states can force out-of-state online retailers to collect sales tax. South Dakota is asking the nine justices to overturn a 1992 Supreme Court precedent, appealing a lower court decision that favored Wayfair (NYSE:W), Overstock (NASDAQ:OSTK) and Newegg. Amazon (NASDAQ:AMZN) is not involved in the case as it collects sales taxes on direct purchases on its site, although it makes an exception for third-party vendors.

The Market does not  know what do with itself this morning.  I will entertain strong signals to the up or down side today.  Let’ consider AstraZeneca (AXN).

The VantagePoint platform recently indicated a potential downside breakout in AZN could be forming due to a bearish crossover between 4/13/18 and 4/16/18.

Using the predictive indicators embedded within the VantagePoint platform and its predictive AI technology, we will point out four significant things. We have a bullish crossover indicated by the blue predictive indicator line crossing below the black simple moving average between 4/13/18 and 4/16/18. We can combine that with the VantagePoint propriety neural index indicator moving from the GREEN to the RED position that same day.  This indicator measures strength and weakness for a 48-hour period, in this case, weakness.  The move to the RED position further makes the case for a potential bearish scenario. Additionally, we see that the predicted high and low for today’s range is below the actual high and low from yesterday’s session.  I want to play the VP bearish indication.

Strategy Discussion

If one were a straight stock trader, simply selling ANZ in the $35.75 area could prove to be prudent. You are anticipating a move to the downside. It’s also a conservative way to enter ANZ without the limitation of time associated with other strategies. In this scenario, it would also be good practice to place a buy-stop order in the $36.35 area to mitigate potential losses.

For more active traders with a shorter investment time horizon, you can consider a setup utilizing options. Given the market conditions outlined above, taking an active, premium debit approach may be the best path to success.

Because of the reasons given above, the purchase of a debit put spread may be one way to approach this situation.  First order of business is to determine your target strike.  This will serve as the short leg of our debit put spread.  We need three pieces of information to perform this calculation:  current price, date of expiration and ATM implied volatility.  In this case, ANZ yields a target strike of ~$35.  You can consider the ANZ April 27th  WE35/35.5 put spread paying $0.13.  The maximum risk of this spread is the amount of premium you paid and the maximum reward is the width of this spread less the premium paid.  Max risk = $0.13, max reward = $0.37 which gives us a reward to risk ratio of 2.85:1.

Given the trading and market environment outlined above, a trader must evaluate whether this reward/risk ratio is appropriate for his/her risk tolerance.