Global Market Comments
July 10, 2020
Fiat Lux
Featured Trade:
(HOW TO HANDLE THE FRIDAY, JULY 17 OPTIONS EXPIRATION),
(REGN), (ILMN), (SGEN), (JPM)
Followers of the Mad Hedge Fund Trader alert service have the good fortune to own FOUR deep in-the-money options positions that expire on Friday, July 17, and I just want to explain to the newbies how to best maximize their profits.
These involve the:
Seattle Genetics (SGEN) 7/140-$145 call spread
Illumina (ILMN) 7/$320-$330 call spread
Regeneron (REGN) 7/$570-$580 call spread
JP Morgan Chase (JPM) 7/$80-$85 call spread
Provided that we don’t have another 3,000-point move down in the market by next week, these positions should expire at their maximum profit points.
So far, so good.
I’ll do the math for you on our oldest and least liquid position which I almost certainly will run into expiration. Your profit can be calculated as follows:
Profit: $5.00 expiration value - $4.30 cost = $0.70 net profit
(23 contracts X 100 contracts per option X $0.70 profit per option)
= $1,610 or 16.27% in 18 trading days.
Many of you have already emailed me asking what to do with these winning positions.
The answer is very simple. You take your left hand, grab your right wrist, pull it behind your neck, and pat yourself on the back for a job well done.
You don’t have to do anything.
Your broker (are they still called that?) will automatically use your long position to cover your short position, canceling out the total holdings.
The entire profit will be credited to your account on Monday morning July 20 and the margin freed up.
Some firms charge you a modest $10 or $15 fee for performing this service.
If you don’t see the cash show up in your account on Monday, get on the blower immediately and find it.
Although the expiration process is now supposed to be fully automated, occasionally machines do make mistakes. Better to sort out any confusion before losses ensue.
If you want to wimp out and close the position before the expiration, it may be expensive to do so. You can probably unload them pennies below their maximum expiration value.
Keep in mind that the liquidity in the options market understandably disappears, and the spreads substantially widen, when a security has only hours, or minutes until expiration on Friday, July 17. So, if you plan to exit, do so well before the final expiration at the Friday market close.
This is known in the trade as the “expiration risk.”
One way or the other, I’m sure you’ll do OK, as long as I am looking over your shoulder, as I will be, always. Think of me as your trading guardian angel.
I am going to hang back and wait for good entry points before jumping back in. It’s all about keeping that “Buy low, sell high” thing going.
I’m looking to cherry-pick my new positions going into the next month-end.
Take your winnings and go out and buy yourself a well-earned dinner. Just make sure it’s take-out. I want you to stick around.
Well done, and on to the next trade.
You Can’t Do Enough Research
“The stock market is not expensive at 2% Fed funds and 2% government bonds,” said my old investor and mentor Leon Cooperman of Omega Advisors.
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
Mad Hedge Biotech & Healthcare Letter
July 9, 2020
Fiat Lux
Featured Trade:
(DOUBLING UP AGAIN ON BIOTECH),
(BMRN), (VRTX), (GILD), (MRNA), (CRSP)
If the volatility of the stock market lately has been making you sick, then it might be time to add more biotechnology and healthcare stocks to your portfolio. They’re all having the effect of dragging each other up in this superheated environment.
Investors looking for these businesses can find a safe haven in rare diseases big player BioMarin Pharmaceutical (BMRN), which has $16.5 billion in market capitalization.
While most businesses languished since the pandemic broke this 2020, this biotechnology company’s shares rose by 12% this year. That’s not where it ends, though.
BioMarin could still pick up even more momentum despite the second wave of COVID-19.
The company currently has an extensive pipeline aimed at rare genetic diseases, with seven already approved and marketed in over 75 countries across the globe.
Looking at BioMarin’s first quarter earnings report for 2020, the company recorded a revenue of $502.1 million. This shows a 25% increase from the $400.7 million it raked in during the same period in 2019. It also handily beat the analysts’ estimate of $468.8 million.
Among BioMarin’s products, genetic metabolic disorder infusion Naglazyme is considered the top-selling treatment.
Sales of this product climbed 32% year over year in the first quarter to hit $27.4 million, with the jump primarily attributed to an increase in sales in Russia and Brazil.
However, the rising stars of BioMarin are two enzyme replacement treatments.
One is genetic blood disorder treatment Palynziq, which skyrocketed by 181% year over year to reach $22.3 million.
The other is Batten disease treatment Brineura, which soared by a whopping 97% to rake in $24 million.
Three of BioMarin’s drugs also performed well during this quarter.
Phenylketonuria drug Kuvan recorded $15.1 million in sales, up by 14% from the same period in 2019.
Meanwhile, Morquio A syndrome medication Vimizim generated $11.4 million in sales, showing off a 9% year over year jump as well. As for Aldurazyme, this Hurler syndrome drug’s sales rose by 23% to reach 10.4 million.
Now, the company is looking into another rare-disease treatment, which could cover Hemophilia A therapies via its experimental gene therapy Roctavian. This can open up a huge market for BioMarin, with over 20,000 Americans suffering from this disease.
Roctavian is expected to receive the FDA green light earlier than its August 21 decision date, possibly marking another blockbuster drug added to BioMarin’s pipeline.
Needless to say, the steady sales growth of these products served as the major driver of the company’s improving bottom line.
Over the past 10 years, the annual revenue of BioMarin has consistently climbed and beat analysts’ expectations -- a trend that’s likely to go on in the next decade as well.
Another company that built its name on rare diseases treatments is Vertex Pharmaceuticals (VRTX).
While most stocks struggle to deal with black swan situations like the COVID-19 pandemic, Vertex is poised to enter the $100 billion market cap club soon.
In fact, the company recently updated its 2020 guidance, increasing its initial estimate from $5.1 billion and $5.3 billion to $5.3 billion to $5.6 billion.
In sum, Vertex is poised to continue its upward trajectory despite the current economic landscape.
The confidence in its growth is bolstered by its recent earnings report for the first quarter of 2020, which indicated an impressive 77% year over year to reach a net revenue of $1.5 billion.
At the moment, Vertex has $61.7 billion in market capitalization, with the company transforming into the most dominant player in the cystic fibrosis (CF) space. Actually, Vertex holds the monopoly on the approved drugs used to treat CF, namely, Kalydeco, Orkambi, and Symdeko.
Apart from its efforts to continuously dominate the CF sector, Vertex also has several moonshots that can eventually turn into major catalysts.
Among those is its partnership with CRISPR Therapeutics (CRSP).
The two biotechnology companies are developing a gene therapy called CTX001 which can cure rare genetic blood diseases. Specifically, CTX001 is designed to cure beta-thalassemia and sickle cell disease.
Apart from its partnership with CRISPR Therapeutics, Vertex also acquired Semma Therapeutics in 2019 with the goal of coming up with a cure for Type 1 diabetes. If things go as planned, a gene therapy for this genetic disease will advance to clinical testing by early 2021.
While the world is mired in crisis, the biotechnology sector has been fueled with excitement particularly because of the potential COVID-19 vaccines and cures from companies like Gilead Sciences (GILD) and Moderna (MRNA).
With insistent whispers that a second wave of the deadly COVID-19 is well on its way, opportunistic investors are actively seeking defensive stocks with businesses that can withstand the second wave of infections.
Both BioMarin and Vertex offer safe bets in this increasingly unpredictable world. Aside from proving their capacity to expand, both also have incredible room for growth.
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to a six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three-day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more