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How I Guaranteed Myself a Profit Trading Moderna (MRNA)

How I Guaranteed Myself a Profit Trading Moderna (MRNA)

Posted On September 1, 2020 2:53 pm
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A few weeks ago, on July 15th to be exact, I  issued an Alert to Options360 members, recommending a bearish position in “Moderna (MRNA)”, a biotech company that seemed to have the inside line towards a COVID-19 vaccine.  The stock, which for years, had been dormant in the low $20 range, starting powering higher in the beginning of March — reaching a momentary peak near $90 ( a 350% gain) by late May.

I don’t usually trade biotechs because of the binomial outcomes, pass or fail on a single trial, issues and implications surrounding COVID meant I should keep an eye on the sector.  What I found with MRNA is a company that has never, and I repeat never, had a product approved through a Phase III trial, let alone brought a drug to market.  I’m not here to cast aspersions on their business practices. But, merely stating a fact.

COVID presented an opportunity to over-promise — and thus far underdeliver — allowing management to stick its snout in the funding draw. Between April and June MRNA insiders sold over $30 million in shares, even as the company was being awarded $1.3 billion by the government as part of the warp speed project. 

Unfortunately, they failed to disclose this windfall and other items such as not having a patent on the technology they claimed.   When this last round funding hit the new in mid-July and shares spiked above issued this Alert to Options360 members

July 15 MRNA Bear

MRNA released results of a drug trial, suggesting they may be hot on the trail of a vaccine for Covid#19. Phht.  This company has never taken a drug through the complete approval process or taken one to market.  Management is known as promoters. The trial was still just a couple hundred people. And most of them got sick. Also, the chart now has a double top from the time they told their last lie.

moderna july stock chart

The trade recommendation at the time was to establish a bearish position through the purchase of a put spread; specifically, buy the October 70 put and sell the October 55 Put for a $5.80 net debit. 

ACTION:

-Buy to open 1 contract MRNA October (10/16) 70 Put 

-Sell to open 1 contract MRNA October (10/16) 55 Put

For a Net Debit $5.80  (+/-0.20) 

The notion was this would be a ‘set it and forget’  position, meaning I had an opinion the stock would be heading lower and there would be no reason to make adjustments. But, as MRNA shares began drifting below $75, then $70 and now $65. I saw an opportunity to reduce my cost basis and basically guarantee a profit. 

So I engaged in selling “inside put spreads” or those that have a shorter duration and narrower strikes than the original October 70/55 strikes. In this way, I collected three rounds of premium to bring cost basis of the original position down to just $1.40

moderna august stock chart

Today with the stock hitting a new low of $63 I made what will be my final adjustment. I sold the Sep (9/18) 60/55 put spread for a $1.70 credit turning the original position, which initially cost $580 per contract) into a net credit of $40 per contract. This means the position cannot lose! 

If shares drop below $55 the October 70/55 spread will be worth $15 while the short Sep 60/55 spread will be worth $5 netting a $1,000 or 75% gain.  And the best part is I no longer have any risk. 

If you like a peek at how Steve Smith chooses and manages his positions for the Options360 service, we’re offering a one-month trial for just $19 per month.

 

 

 

About author

Steve Smith
Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.

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