Friday, June 25, 2010

Establish Cubist Pharmaceuticals Covered Calls

A new covered calls position was established in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Cubist Pharmaceuticals (CBST) covered calls as follows:

Established Cubist Pharmaceuticals (CBST) Covered Calls for Jul2010:
06/25/2010 Bought 300 CBST @ $21.31
06/25/2010 Sold 3 CBST Jul2010 $22.50 Calls @ $.50

Cubist Pharmaceuticals, Inc. operates as a biopharmaceutical company focused on the research, development, and commercialization of pharmaceutical products that address unmet medical needs in the acute care environment. The company markets CUBICIN (daptomycin for injection), the first antibiotic in a new class of anti-infectives called lipopeptides in the United States. It also promotes MERREM I.V. (meropenem for injection) in the U.S. under an agreement with AstraZeneca Pharmaceuticals, LP. The company's clinical product pipeline consists of ecallantide, a recombinant human protein being developed for the reduction of blood loss during cardiac surgery, for which Phase 2 data is under analysis; a Phase 2 program focused on the development of a novel cephalosporin to address certain serious infections caused by multi-drug resistant (MDR) Gram-negative organisms; a program for the treatment of CDAD (Clostridium difficile-associated diarrhea), which is entering Phase 2; and a Phase 1 program to address the unmet medical need for a treatment for serious infections caused by MDR Gram-negative pathogens. Cubist Pharmaceuticals is also working on various pre-clinical programs, including an anti-infective program for the treatment of respiratory syncytial virus (RSV) in children, therapies to treat various serious bacterial infections, and agents to treat acute pain. It has a collaboration agreement with Alnylam Pharmaceuticals, Inc. for developing Alnylam's RNA interference to treat RSV. The company was founded in 1992 and is headquartered in Lexington, Massachusetts.

Cubist is ranked as a "Buy" by both of the stock advisory services used by the Covered Calls Advisor, namely Schwab Equity Research and The Buy Alerts spreadsheet below shows that CBST's financials are very attractive at this time, and the total points rating of 18.16 is well above the Covered Calls Advisor's desired "Buy" threshold of 15.0.

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

Some possible overall performance results(including commissions) for the CBST transactions would be as follows:
Stock Purchase Cost: $6,401.95
= ($21.31*300+$8.95 commission)

Net Profit:
(a) Options Income: +$138.80
= (300*$.50 - $11.20 commissions)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $21.31):
-$8.95 = ($21.31-$21.31)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $22.50): +$348.05
= ($22.50-$21.31)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $21.31): +$129.85
= (+$138.80 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $22.50): +$486.85
= (+$138.80 +$0.00 +$348.05)

Absolute Return if Unchanged at $21.31: +2.0%
= +$129.85/$6,401.95
Annualized Return If Unchanged (ARIU) +33.7%
= (+$129.85/$6,401.95)*(365/22 days)

Absolute Return if Exercised at $22.50: +7.6%
= +$486.85/$6,401.95
Annualized Return If Exercised (ARIE) +126.2%
= (+$486.85/$6,401.95)*(365/22 days)