Amgen draws skeptical option trade after hiking buyback program

Today's option activity underscores the skepticism that traders are feeling toward AMGN. Nestled among the day's trades is a short call spread, a neutral-to-bearish strategy in which the speculator sells a lower-strike call and buys a higher-strike call.

With AMGN trading just shy of $57, today's credit spread trader opted to sell the December 57.50 call and buy the December 62.50 call. This position was opened for a net credit of $0.77 per contract, which is the maximum potential profit the trader can hope to gain on this spread. As long as AMGN remains pinned beneath the 57.50 strike through December expiration, the option player will get to keep all of this initial credit.

From a technical perspective, AMGN looks like a solid candidate for this skeptically skewed spread strategy. The $58 level provided support from mid-July through mid-October, but this region has since switched roles to act as resistance. Pressure in this area should be reinforced by the stock's 20-week moving average, which is currently descending through the $58 neighborhood.

Elizabeth Harrow is a senior equities analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.