The Money Tree

Safely Generating Income in Retirement

Posts Tagged ‘MYGN’

Deep OTM NP Strategy – AUG Week 3

Posted by mounddweller on July 31, 2011

Fellow Traders,

The recent uptick in volatility has generated an increase in the number of trades meeting our selection criteria this week.  The complete list of possible trades is presented below.

As you can see I highlighted two that caught my eye.  First up, let’s look at CREE.  Cree, Inc. develops and manufactures light emitting diode (LED) products, silicon carbide (SiC) and gallium nitride (GaN) material products, and power and radio frequency (RF) products. Its LED products include LED chips used in various applications, including video screens, gaming displays, function indicator lights, and automotive backlighting; LED components; and LED lighting products.

It is a competitor to RBCN which has appeared on our selection list on several other occasions.  CREE has an excellent balance sheet.  It has $9.85/share in cash and no debt.  Unfortunately, it has a very ugly 1-year price chart (see below).  It has fallen from a 52-wk high of $74.87 to a recent low of $30.17.  In the past couple of weeks it has attempted to turn the corner and head back up.  Friday it closed at $32.85.  The reason this trade caught my eye is because the strike price of $27.50 is well below the recent low of $30.17.  Barring a complete melt-down in the market from the debt-ceiling crisis I think this trade has potential.

The second trade that caught my eye is in MYGN.  Myriad Genetics is a stock I unsuccessfully traded last year.  I had done a buy/write and had successfully sold two rounds of CCs before the bottom dropped out and left me high and dry.  This time the set-up is a little bit different.  The stock has already fallen substantially.  The strike price ($18) of our NP trade is at an area of strong support.  The stock closed Friday at $21.27.

If I had to choose between the two trades I’d pick CREE over MYGN.  It has already bounced and is trying to recover while MYGN still appears to be falling.

Best of luck trading this week.




Posted in Deep OTM NP Strategy | Tagged: , , | Leave a Comment »

MYGN – Final Results

Posted by mounddweller on November 27, 2010


It’s been quite a while since I’ve posted anything on my blog.  My apologies.  However, no posts doesn’t mean I haven’t been trading.  It just means my trading has drifted away from exclusively following and selecting only VISIONS trades.  More about that later. 

Right now I want to update you on the final results of my MYGN trade.  You’ll recall I entered this trade with a buy/write back on March 29th.  Shortly after that a court case went against MYGN that invalidated some of their patents.  This caused the stock to drop substantially.   After MYGN went nowhere for 6 months I decided to sell calls below my break-even price.  Of course Murphy’s Law came into play a few short weeks later and the stock jumped back up above my $17.50 strike price.   It then stayed there and closed ITM at the November expiration.  Rather than trying to buy the option back and roll it out, I decided to let it be called away at a loss.  This was my first loss ever using Ron’s VISION’s methodology.

Below is a snapshot of my MYGN trade:

Let’s spend a minute evaluating what I could have done differently to prevent this loss.  First, better due-diligence upfront before placing the trade may have revealed the potential patent issues.  Second, I could have been more aggressive in my trading after the stock fell.  I only sold one round of puts.  Had I continued to sell puts instead of the calls, I more than likely would still have MYGN in my account and would continue to lower my net cost basis.



Posted in Portfolio Updates | Tagged: , , , | 5 Comments »

MYGN – Update

Posted by mounddweller on August 22, 2010


On Friday MYGN closed at $15.97.  Consequently my AUG $15 naked puts expired OTM.  The stock bottomed out around $14.50 back on July 30th and subsequently recovered to as high as $16.54 before falling back with the rest of the market on Thursday and Friday.  I’m going to wait and see how the market opens tomorrow before deciding when to implement my next trade on this position.  I would like to sell the SEP $15 naked puts but would like to get a bit more for them than the current $0.35 bid.  If MYGN looks like it might move higher I may consider selling the $15 strike further out in time.



Posted in Portfolio Updates | Tagged: , | Leave a Comment »

MYGN Update

Posted by mounddweller on July 17, 2010


I have an update on my position in MYGN.  As you’ll recall MYGN came up on my VISIONS scan back in late March.  I executed a buy/write at around $24.68.  The APR $25 calls expired so I wrote the MAY $25 calls.  These also expired about the same time as the bottom fell out of the stock.  Since May it has fallen to as low as $14.29 before recoving back into $15+. 

It seems to me MYGN may have found a bottom.  Accordingly, I decided on Friday to sell 2 AUG $15 puts for $0.60.  If I have MYGN put to me at $15 at AUG expiration I will own 500 shares with a net cost basis of $19.96.  If my AUG puts expire OTM I will sell another round with a SEP expiration. 



Posted in Portfolio Updates | Tagged: , | 1 Comment »

MYGN – What to Do?

Posted by mounddweller on June 20, 2010

It would be a big understatement to say that I slightly misjudged the inherent risk in my MYGN trade.  Clearly, MYGN was a mistake.  I over emphasized the positives of the trade and failed to turnover every rock looking for the hidden risk.  In this case the risk wasn’t exactly hidden, I just failed to perform adequate due diligence.  The validity of some of the company’s patents have been revoked (MYGN is appealing the decision). 

Initially it appeared after a sharp decline that the stock would stabilize and then begin a slow recovery.  I was fine with this because the company has an excellent balance sheet and there didn’t appear to be any need for immediate alarm.  However, in the past couple of weeks MYGN has continued to slip and has now fallen below support in the $17.50 range.

What to do?  As I see it I have the following choices:

(1) sell OTM naked puts for JUL or AUG in an effort to generate cash flow and significantly reduce my net cost basis if assigned.  I see my two primary options being the JUL $16 or AUG $15 puts.  The downside to this option is committing additional capital to a trade that might not yet have found a bottom.

(2) sell OTM near month calls below my current cost basis of $23.60.  This would allow me to generate cash flow off of my existing position but if the stock recovers I could find myself stuck in between a rock and a hard place trying to rollout my position to avoid assignment below my net cost basis.

(3) sell long-dated calls at or above my current net cost basis.  This option generates little income and has the potential to severely limit my potential gains should the stock rapidly recover in price well before my long-dated call options are due to expire.

(4) sell my existing MYGN shares at a loss and identify a new trade with which I can work to recover my loss of capital. 

(5) do a combination of the above.

(6) do nothing and wait for MYGN to recover.  It has a rock-solid balance sheet and good growth potential.  Eventually the price will recover.  However, given the current overall market condition that could be a long time coming.

I’m open to hearing your suggestions as to which of these options appeals to you and why.  Perhaps there is another alternative I haven’t considered.  If you think of one, please let me know.



Posted in Portfolio Updates | Tagged: , , , | 3 Comments »

MYGN – An Update

Posted by mounddweller on May 7, 2010

Well everyone it looks like MYGN has went from a short-term trading opportunity to a long-term investment.  However, given the conservative approach taken in selecting MYGN as a trade, I have no qualms in holding it longer term. 

Let’s quickly review why I originally bought MYGN and why I don’t mind holding them through this rough patch:

(1) outstanding balance sheet – $3.58/share in cash and ZERO debt.  At current price around $17.50, cash on hand is 20% of the market cap.

(2) excellent income statement – net profit margin is > 30% (note: they recently cut earnings forecast so this may drop a little, but it could be cut in half and still be a great number)

(3) excellent cash flow – operating cash flow > 30% and levered free cash flow > 10% of revenue

Now, an update on what’s happened to put the stock on the “1/3 off” sales rack:

(1) March 30 – Company lost a court case regarding the validity of its patents on genes used in its breast cancer susceptibility tests.

(2) May 4 – Company announced 1st quarter earnings.  Revenue only grew 5%.  However, that wasn’t the bad news that sunk the stock price.  It was the lowering of forecasted annual earnings of $1.30 to $1.35 that did that.  Previous guidance had been around $1.50/share.

(3) The overall market has gotten a recent haircut as well.

Combined these three events have knocked MYGN for a loop.   However, I think the market is being short sighted.  First, the verdict on the patent case is already being appealed.  It will be many years before a final decision is made regarding the legality/morality of patenting human genes.  Second, the reduced 2010 full year forecasted results aren’t that bad.  The company still expects growth in excess of 50% over last year!  Finally, last but not least, the current market weakness will pass.  

Now, finally a quick update on my current position in MYGN.  As you’ll recall on 3/29 I bought 300 shares at $24.68/share.  I then sold the APR $25 calls for $0.55.  These expired OTM.  Then, on 4/27 I sold another round of MAY $25 calls at $0.60.  This makes my current net cost $23.53.   Barring a huge rally in the next two weeks these too should expire OTM. 

I now have a decision to make.  Do I try to lower my cost basis by selling OTM NPs  or after MAY expiration do I begin selling CCs below my current net cost?  Time and overall market conditions will determine which will be the best course to follow.

Posted in Portfolio Updates | Tagged: , , | Leave a Comment »

New Trade – MYGN

Posted by mounddweller on March 29, 2010


I executed my trade in Myriad Genetics this morning.  The stock was bouncing all over the place at the open as was the option pricing.  One thing I didn’t note in my original write-up is that the options for MYGN are fairly thinly traded.  Thus, the bid/ask spreads are very wide.

Here’s the trade I entered:  I did a buy write on 300 shares (as opposed to the 400 I referenced in my last post) for a net debit of $24.25/share. 

The trade executed as follows:  Bought 300 shares MYGN at $24.68.  Sold 3 APR $25 calls at $0.55.

This makes my ROIC 2.22% if unassigned (0.55/24.68) and  3.53% if assigned ((25 – (24.68-0.55))/24.68).  Those aren’t bad numbers given there are only 19 left to APR expiration.

Posted in Troy's New Picks! | Tagged: , | 4 Comments »

Potential New Trade – MYGN

Posted by mounddweller on March 28, 2010


I have a new trade I expect to enter at the market open on Monday morning.  The name of the company is Myriad Genetics (MYGN).  First, the details on the trade I intend to enter:

Buy 400 shares MYGN at around $25.

Sell 4 APR $25 calls at $0.75 or better.

If I’m able to execute the trade at the prices referenced above my ROIC will be 3% for a 21 holding period.  That’s not bad considering the VIX is down around 17-18.

Now, why do I like this trade?  Well, I have a number of reasons, all of which revolve around SAFETY.  I remain convinced we have significant potential for a near term pullback in the overall market so I only want to enter new positions that I would feel comfortable holding should the market move against me.

First, let’s look at who they are and what they do.  Here’s what the profile on Yahoo has to say about them: “Myriad Genetics, Inc., a healthcare company, focuses on the development and marketing of novel molecular diagnostic products. It commercializes predictive medicine, personalized medicine, and prognostic medicine products. The company markets BRACAnalys for assessing a woman’s risk for breast and ovarian cancer; COLARIS molecular for assessing a person’s risk of developing colorectal cancer or uterine cancer; COLARIS AP, a molecular diagnostic product for colon cancer that detects mutations in the APC and MYH genes; and MELARIS, which assesses a persons risk of developing melanoma. It also offers OnDose, a personalized medicine product to measure a patient’s exposure to 5-FU chemotherapy; PREZEON that assesses loss of PTEN function in cancer patients; and TheraGuide 5-FU assesses a person’s risk of developing a toxic reaction to 5-FU-based chemotherapy. The company was founded in 1991 and is headquartered in Salt Lake City, Utah.”

OK, so I can ‘hear’ some of you thinking, “Troy, a genetics company, safe?”  Well, in a word, YES!  They develop and sell consumable medical diagnostic kits.  CONSUMABLE = repeat business; MEDICAL = steady demand regardless of economic conditions.  To me, that sounds pretty safe.

Now let’s look at the fundamentals.  Here are the financial highlights I found in Yahoo.

   As you can see they have excellent fundamentals.  They have a net profit margin of 32.74%.  Amazing!  For every dollar in sales almost 33 cents falls to the bottom line!

Are they growing?  Yes, quarterly revenue growth is over 10% and earning growth is north of 60%!

OK, what about the balance sheet?  How about this, they have a year’s worth of revenue sitting in cash and ZERO debt.   With a market cap. of around $2.4B and $350M cash in the bank, almost 15% of their market cap is cash in the bank.  To me, that’s pretty SAFE!

Now let’s move on and see what the technical situation looks like.  Below is the chart from VISIONS.  What do we see?  I see an almost perfect set-up for a successful trade.  The stock is coming off of a 52-week low set back in February.  It has been trading in the V for 23 days.  The only downside is that it hasn’t had 3 consectutive up days.  Thus, it’s  Gold$ score is only 80 instead of 100.

Finally, let’s look at what the VISIONS Stock Explorer has to say about the trade.  First, we see the stock is rated ‘TA’ (i.e., “Take Action”).  I’ve already mentioned the Gold$ score is 80.  The option month and strike price I chose only rates one ‘*’ in Ron’s Best Fit criteria.  It so happens he likes the MAY $25 call better.  It has 3 stars (‘***’).

Well, there you have it.  All in all I think this is a very good trade.  One of the best I’ve seen in several weeks.  One final thought, I did check for the next earnings release.  It is not until May 5, well after APR expiration. 

I’ll be back tomorrow with another post to let you know my exact entry point after I execute my trade.



Posted in Potential Trades | Tagged: , | 2 Comments »