Alexion is a biotech company with a small number of drugs using antibody therapies against rare but severe disorders, including autoimmune disease, cardiovascular disease, inflammation, and cancer. Analysts expectations for the stock price are bullish. Fourteen analysts rated the stock as either Buy or Outperform, nine rated it a Hold, and none rated it either Underperform or Sell. The average one-year target price is $141 (39.7% above the current stock price).
The 36.1 Implied Volatility for these Alexion Put options was attractive to the Covered Calls Advisor since it is well above the current S&P 500 Volatility Index (VIX) of 22.6. So the $358.66 ($1.80 per share x 200 shares - $1.34 commission) is a nice premium to receive for these out-of-the-money (i.e. strike price below the current stock price) Put options. Importantly, Alexion reported their 2nd quarter earnings at the end of July, so there is no earnings report prior to the September 18th options expiration date. Their quarterly earnings were 20% above analysts' estimates and the analysts' estimates for 2020 is for revenue above last year and for earnings of about $11 per share -- a P/E ratio of only about 9.2 based on the current $100.93 stock price. In addition, further gains in both revenue and earnings are expected for 2021.
As detailed below, for this new Alexion Pharmaceuticals Inc. Cash-Secured Puts position there is potential for a +1.9% absolute return in 26 days (equivalent to a +27.0% annualized return-on-investment).
Alexion Pharmaceuticals Inc. (ALXN) -- New 100% Cash-Secured Puts Position
The transaction today was as follows:
08/24/2020 Sold 2 Alexion September 18th, 2020 $95.00 100% Cash-Secured Put options @ $1.80 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 two Put options sold.
A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $18,641.34
= ($95.00 - $1.80) *200 shares + $1.34 commission
Net Profit:
(a) Options Income: +$358.66
= ($1.80 *200 shares) - $1.34 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Alexion is above $95.00 strike price at the September 18th expiration): +$0.00
= ($95.00 - $95.00) *200 shares
Total Net Profit (If Alexion stock price is above $95.00 strike price at options expiration): +$358.66
= (+$358.66 options income +$0.00 dividend income +$0.00 capital appreciation)
Absolute Return (If ALXN is above $95.00 strike price at the Sept 18th options expiration) : +1.9%
= +$358.66/$18,641.34
Annualized Return: +27.0%
= (+$358.66/$18,641.34)*(365/26 days)
The downside 'breakeven price' at expiration is at $93.20 ($95.00 - $1.780), which is 7.7% below the current market price of $100.93.
