We discussed GILD in yesterday's Live Member Chat Room after hours.
As you will see, it's not just the trade, but the lesson of the trade that makes it worth choosing. If you are a beginner trader (but you'll still need margin), I suggest dividing the amounts by 5 and following along (we will update along the way) as this trade idea will teach you a lot about long-term trade management and adjustments:
$109 is $136.6Bn and they are making $10Bn so 13-14x is a good price (I always like GILD). $17Bn in debt is less than two year’s earnings – not too bad and shitty, 3% dividend is fine by me as they are not wasting money (but no room to fall back either).
My issue is that there’s no top-line growth. $27Bn in 2021, when they were $70 with $6Bn in earnings and now $29Bn with $10Bn in earnings so they’ve been squeezing efficiency and probably spending less on R&D so I wouldn’t give them more than 1.66x for the earnings gain and that’s $112, which means the price is right.
Then the problem is we KNOW things fall off-patent so there WILL be pressure to go back to an investing cycle and traders WILL be disappointed when it happens (2027ish) so I would certainly play a channel down to $90.
NOW we have a trading range for the LTP:
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- Sell 5 (happy to DD on a downturn) GILD Dec 2027 $90 puts at $9 ($4,500)
- Buy 15 GILD Dec 2027 $90 calls at $29 ($43,500)
- Sell 10 GILD Jan (2026) $110 calls for $8 ($8,000)
- Sell 10 GILD Oct $110 calls for $5.50 ($5,500)
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Puts are not worth selling (Oct $105 puts are $3.50), but of course on a nice dip sell some. As it stands, net $25,500 on the $45,000 spread but your time advantage means easily double that if things go well to the upside and, if not, then you have 2.5year to sell $5,500 per quarter ($45,000 ish) not even counting short-term puts and you WILL collect at least $8,000 more premium when the 2026 short calls expire (or position at worst) so lots and lots of ways to make money and, if GILD goes down, you sell short-term puts ($2,500+ per q) and more 2027 puts ($5,000) and you use that money ($5 per long) to roll down to the $80 calls and, if lower, roll and DD and make it a 5-year recovery play.
