Maybe it’s the sense of being trapped in a bad weather pattern.
Maybe it’s the lack of progress on the next employment front.
Maybe it’s frustration with a serious after-holiday diet and exercise regimen (when the roads are clear enough to drive to the club with its lap pool).
Anyway, I got out my knife-catching gloves today, and started to position some stocks that I would like to own now to write calls on later.
Let me make this clear (again):
I have no special knowledge of these companies, or their technology. Unlike mortgage REITs, where I will continue to maintain my current moratorium on comments, all my speculations in biotech world are just that — speculation.
I am not recommending them. I have read some things that make me think each of them might be the next Dendreon or Elan, but you should know that I invested in those two stocks years before they became winners, and I was deep underwater in them before they turned a profit for me. (After occasionally having huge paper profits which I failed to fully harvest.)
It’s that last point – harvesting the gains – that made me settle on the idea of investing in a whole collection of developmental drug companies and selling covered calls.
Even then, huge call option premiums may not be enough to protect me from mark-to-market losses. Case in point – Arena Pharmaceuticals….. I went long in the 5’s and 6’s and wrote $6 and $7 calls, and more than a few $6 and $7 puts, too. When the stock got put to me and proceeded to drop below $2, I was deep underwater, since the option premiums only lowered my “cost” to $3.80 or so.
Having said that, I have averaged down to a lower cost, and written plenty of long-dated LEAP calls at $4 and $5 strikes. I effectively lowered my cost even farther by doing that, and set myself up to make thousands if the stock takes off at some point.
The Arbitrary Panel at the FDA “suggested” Arena do some more lab mouse tests. It infuriated long time bulls on the stock, and clobbered the stock back down to the $1.60 neighborhood from the $2 or so it had climbed to.
Another with a similarly disturbing chart is SNTA, my bizarro Christmas season stock. With it, I’ve sold $5 and $7.50 calls.
Finally, I’m introducing a new name to this blog, Exact Sciences (EXAS). I bought into it over the past couple of months due to interest and some reasonable sounding write-ups on other boards. The idea of someone coming up with a way to show whether you need a colonoscopy sounds like a winner to me. It also has some very handsomely priced options. My initial purchase around $6 a share was paired with sales of $6 calls for April.
My most recent purchases down 40 cents or so are made with the plan to wait for a bounce, and then sell more $6 calls. For the less adventurous (after all, the failure of the assault on Dow 12,000 and EssAndPee 1300 looks pretty ominous to the chartists), you could even buy EXAS today and sell the April $6 calls for 45 or 50 cents. That means your cost basis would be closer to $5.20 a share, a level that should make anyone happy about getting called away for $6 a share in three months.
I’m a little more of a risk-on guy, so I’ll see whether the stock can rebound to its $6 trading range before writing new calls on the latest purchase.
So, to summarize, I’m catching these biotech knives with the intent of writing calls on them when they catch a trading bounce from their recent plunges.
I expect I’ll be able to sell SNTA $5 calls for more than a buck, even though it’s costing just below $5 a share right now. For ARNA, I’m looking at the $2,50 and $4 calls as potential future sales. With EXAS, it will be the $6’s, but I’d like to get closer to 75 cents a share in option premium.
If I make money on these, I have no doubt that it will be spent with carpenters in the spring, given the future water damage caused by the ice dams all around the perimeter of my antique house. Something seems to have brought the northern branch of the jet stream way too far south this year, and unlike other years, it’s bringing moisture with it. I just read that the Arctic Ocean had a record small amount of frozen surface for December, so that explains the moisture (snow) from every little wave that goes by.
It truly sucks when the “relief” is temps getting up to 30 degrees, followed by single digit freezes. If we get another big coastal storm next week, the number of roof collapses around here is likely to spike.
And this is after having more 90 degree days last summer than we’ve had in very long time (four times the normal seasonal average).
I keep going out and breaking off the icicles, but the ice buildup on the eaves has got to be like parking a car at the edge of your roof, from a weight perspective. I’ve even thought about getting a ladder and going out there with a blowtorch, but decided to pay the carpenters next spring instead.