Trade Idea: Long Abbott with a bear spread protection

Abbott has endured a strong rally that took out $35 level, leaving the stock set to benefit from the momentum that is being built up following the positive Q1 results.  The overall sector is becoming more popular in the screens of traders as Life Technologies Corp. it is set to be acquired by Thermo Fisher Scientific for a record $13.6 billion (for the full story click here).

Genetic testing is growing as a potential secular growth area investors are looking at. After the Human Genome Project was completed almost exactly a decade ago, the field has successfully overcome the objectives of the ambitious master plan to map the human genome at an affordable cost. The decrease in the costs could attract many players to employ the genetic sequencing  to tailor medical treatments for each patient, according to his or her genetic profile.

Although this sparks concerns for what regards data protection of individuals, the industry has been growing 18% a year and is expected to reach nearly $7 billion in 2016. The sector will as well facilitate the growth in the big data segment; players like IBM, Google and Amazon are making a step forward to reach this multibillion dollar industry. Amazon, the online retail and tech giant, said it was making available for public use the entire contents of the National Institutes of Health’s 1000 Genomes Project, a survey of genetic information from 1,700 individuals. Google is investing in several genetic start-ups, including 23andMe, that provides a $99 genotyping kit available for consumers.

Abbott would vastly benefit from the growth in the genetic sequencing  as it would acquire this data to carry out molecular testing for drug discovery. The stock is now attempting to set a new high and a good strategy to play the uptrend is to go delta-1 the stock while buying a 35 – 38 bear spread to protect the downside. Some consolidation is required to move forward, should the overall trend remain intact, else the option strategy will offer a panacea to the quick fall below the trend-invalidating level of $35.