Today, one 100% Cash-Secured Put option was sold in Regeneron Pharmaceuticals Inc. (ticker REGN) at the March 19th, 2021 $440.00 strike price at $7.00 per share when the stock price was $477.60 (7.9% above the strike price). This deep-out-of-the-money position had a Delta of 78.2 which approximates the probability of assignment at the options expiration date. A Cash-Secured Put option was sold instead of its comparable Covered Call in this case. The Open Interest in the Puts was 242 contracts versus zero Call contracts for the comparable strike price.
Regeneron is a biopharmaceutical company focused on treatments for eye diseases, cancer, dermatitis,and rheumatoid arthritis. This strong base business is fortified by its Emergency Use Authorization (EUA) Covid therapeutic in the short-term and the potential of its oncology research pipeline in the long-term. It is currently my favorite biotech company. It has declined dramatically in price in the last six months from a peak in the vicinity of $650 to its current level despite just reporting the highest revenues and earnings of any year in its history and a likely potential to exceed both revenue and earnings by an additional 30%+ in 2021. But they say "it's hard to catch a falling knife", so because of its recent substantial price decline (it is currently oversold on both a RSI(14) and RSI(2) basis), a more conservative than normal strike price was chosen. Consequently, as detailed below, a lower than normal annualized return-on-investment potential exists for this position. Given Regeneron's potential, the Covered Calls Advisor believes it represents a very good value at its current price and at its current relatively modest P/E ratio of 15.3. It also appeared as one of only 33 companies in my 'Best S&P 500 (Value and Profitability)' screener.
The 36.9 Implied Volatility for the Put option was attractive to the Covered Calls Advisor since it is well above the current S&P 500 Volatility Index (VIX) of 22.7 -- so the $7.00 Put option price was a nice premium to receive for this deep-out-of-the-money (i.e. strike price well below the current stock price) Put option. Also important to the Covered Calls Advisor, there is no earnings report prior to the March 19th, 2021 options expiration date.
As detailed below for this Regeneron 100% Cash-Secured Put position, there is potential for a +1.6% absolute return in 31 days (equivalent to a +19.0% annualized return-on-investment).
Regeneron Pharmaceuticals Inc. (REGN) -- New 100% Cash-Secured Put Position
The transaction today was as follows:
02/17/2021 Sold 1 Regeneron March 19th, 2021 $440.00 100% Cash-Secured Put option @ $7.00 per share.
The Covered Calls Advisor does not use margin, so the detailed
information on this position and the potential result detailed below
reflect that this position was established using 100% cash
securitization for the one Put option sold.
A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Put Cost Basis: $43,300.67
= ($440.00 - $7.00) * 100 shares + $.67 commission
Net Profit:
(a) Options Income: +$699.33
= ($7.00 * 100 shares) - $.67 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If REGN stock is above $440.00 strike price at the March 19th expiration): +$0.00
= ($440.00 - $440.00) * 100 shares
Total Net Profit (If Regeneron stock price is above $440.00 strike price at options expiration): +$699.33
= (+$699.33 option income +$0.00 dividend income +$0.00 capital appreciation)
Absolute Return (If Regeneron is above $440.00 strike price at the March 19th, 2021 options expiration) : +1.6%
= +$699.33/$43,300.67
Annualized Return: +19.0%
= (+$699.33/$43,300.67)*(365/31 days)
The
downside 'breakeven price' at expiration is at $433.00 ($440.00 - $7.00),
which is 9.3% below the current market price of $477.60.
