At first glance, Gilead Sciences (GILD) might not strike investors as a particularly compelling opportunity. With the Trump administration vowing to reduce drug prices, the ambitious directive theoretically would have a negative impact on the bottom line. Still, transactions by the smart money suggest that GILD stock should be on bullish speculators’ radar.

On Friday, Gilead represented one of the top names in Barchart’s list for unusual stock options volume. Specifically, derivatives volume reached 28,034 contracts, which was 108.56% above the trailing one-month average. Further, call volume of 21,673 contracts outpaced put volume of 6,361 contracts, yielding a put/call ratio of 0.29.

To be fair, options flow — which focuses exclusively on big block transactions likely placed by institutional investors — was aligned bearishly on Friday. Net trade sentiment slipped to almost $1.063 million below parity. Nevertheless, for the first three days of last week, net trade sentiment was more than $25.1 million in favor of the bulls.

In other words, Friday’s transactions in the derivatives arena were likely modest hedging. Overall, the sentiment among the smart money players appears strongly optimistic.

From the perspective of technical analysis, an argument can potentially be made that GILD stock is charting either a pennant or wedge formation with upside implications. If so, the pattern may be reaching its conclusion, setting up the possibility of a breakout move.

GILD Stock Flashes a Bullish Quant Signal

Although the technical profile of GILD stock seems attractive, declaring a pattern to be a pennant or wedge is awfully subjective. The discipline of technical analysis can end up becoming a Rorschach test — you may see one thing, I might see something completely different. Who is to say which opinion is the correct one?

To avoid such subjectivity, I’ve begun taking an empirical approach to market analysis by focusing strictly on demand as a binary construct. Under this framework, GILD stock in the past 10 weeks has printed a “3-7-D” sequence: three up weeks mixed with seven down weeks, with a net negative trajectory across the period.

The significance of the 3-7-D sequence is that in 61.22% of cases, the following week’s price action resulted in upside, with a median return of 2.13%. Given Friday’s closing price of $102.50, the bulls will likely attempt to push GILD toward the $105 level, possibly by the end of this week. Should the optimists maintain control, a drive toward $106 to $107 may be a legitimate target.

Statistically, GILD stock is a reliable but boring entity. On any given week, the chance that a long position will be profitable is only 51.81%. That’s par for the course for a sector heavyweight like Gilead Sciences, meaning that trading GILD randomly only gives you a slight edge as a bull.

However, GILD responds differently based on various sentiment regimes. My argument is that the 3-7-D sequence is quantitatively a reversal signal. Whenever this sequence materializes, speculators are incentivized to take a shot because the odds of winning are not 51.81%; instead, they’re 61.22%.

But the market makers are pricing GILD stock options as if the odds were only 51.81%. That’s the quantitative edge that daring speculators can take advantage of.

Extracting a Big Payout From the Anticipated Rebound

Given the strong possibility of a rebound in GILD stock, intrepid speculators may consider the 103/105 bull call spread expiring May 30. This transaction involves buying the $103 call and simultaneously selling the $105 call, for a net debit paid of $101. Should GILD rise through the short strike price at expiration, the maximum reward clocks in at $99, a payout of 98%.

As stated earlier, there’s a relatively high probability that GILD stock will rise this coming week — and if it does, the median performance suggests that $105 may be an ambitious but realistic target. Also, the May 30 expiration date (as opposed to May 23) offers some leeway, making the 103/105 spread more attractive.