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Thursday, September 17, 2009

Establish Amgen Inc. Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Amgen Inc (AMGN) covered calls as follows:

Established Amgen Inc.(AMGN) Covered Calls for Oct09:
09/17/09 Bought 300 AMGN @ $59.88
09/17/09 Sold 3 AMGN Oct09 $57.50 Calls @ $3.75

Amgen Inc. is one of the world's largest biotechnology companies. It engages in the discovery, development, manufacture, and marketing of human therapeutics based on advances in cellular and molecular biology. The company markets human therapeutic products primarily in the areas of supportive cancer care, nephrology, and inflammation. Its principal products include Aranesp and EPOGEN that stimulate the production of red blood cells to treat anemia; Neulasta and NEUPOGEN, which selectively stimulate the production of neutrophils, a type of white blood cell that helps the body fight infections; and ENBREL that blocks the biologic activity of tumor necrosis factor by inhibiting TNF, a substance induced in response to inflammatory and immunological responses, such as rheumatoid arthritis and psoriasis. The company has a joint venture with Kirin Holdings Company, Limited to manufacture and market darbepoetin alfa; a co-promotion agreement with Wyeth for marketing and selling of ENBREL; and Johnson & Johnson to commercialize recombinant human erythropoietin as a human therapeutic. It markets its products to healthcare providers, including physicians or their clinics, dialysis centers, hospitals, and pharmacies primarily in the United States, Europe, and Canada. The company was founded in 1980 and is based in Thousand Oaks, California.

This advisor believes that Amgen's late-stage research drug denosumab could be a short-term catalyst for the stock price. It will be presenting progression free survival results for its breast cancer trials at the European Society of Medical Oncology (ESMO)conference next week. Another potential catalyst from this conference could come from Amgen's report on Vectibix (for colon cancer). Positive results could put Vectibix on track to potentially gain future market share versus the current preferred treatment (Merck's Erbitux). Possible further benefit could accrue from the PDUFA (Prescription Drug User Fee Act) date scheduled a month from now for denosumab for its FDA application for osteoporosis. Despite the likelihood of these positive catalysts, the Covered Calls Advisor is establishing a relatively conservative in-the-money position at this time, primarily in deference to the current Overall Market Meter (see right sidebar) rating of Neutral.

Below is the Covered Calls Advisor's 'Buy Alerts' spreadsheet for AMGN. It scored slightly above the Buy threshold of 20.0 with a Total Points rating of 20.24.

Note: For expanded view, left click on the spreadsheet above.

Some potential results from this transaction are:
Absolute Return if Exercised at $57.50: +2.3%
= [($3.75 -($59.88-$57.50)]/$59.88
Annualized Return If Exercised (ARIE): +27.8%
= [($3.75 -($59.88-$57.50))/$59.88]*(365/30 days)

Downside Breakeven Price Point: $56.13
Downside Breakeven Protection: 6.3%
Also, this in-the-money position affords up to 4.0% [($59.88-$57.50)/$59.88] downside protection available while still achieving the maximum potential annualized return-on-investment of 27.8% from this covered calls position.

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