Established a 100% Cash-Secured Puts Position in Harmony Biosciences Holdings, Inc.

This morning (10 minutes after the market opened), a 100% Cash-Secured Put options position was established in Harmony Biosciences Holdings, Inc. (ticker HRMY) at the April 21st, 2023 options expiration date and at the $30.00 strike price.  Five Puts were sold at $1.05 per share when the stock price was $32.70 (9.0% above the strike price).  The Implied Volatility of these Puts was 65.2 when this position was established.  Establishing positions where the Implied Volatility is greater than that of the S&P 500 Volatility Index (i.e. VIX), which is currently at 19.4, is strongly preferred by the Covered Calls Advisor.  This preference is the fifth of the twelve investing "edges" (see here) utilized that contributes to our achieving outperformance in comparison with that of the benchmark S&P 500 Index. There is no earnings report or quarterly dividend prior to the options expiration date. 

Harmony Biosciences is a small-cap ($1.9 billion market cap) commercial-stage pharmaceutical company headquartered in suburban Philadelphia that is focused on rare neurological diseases such as narcolepsy.  Recently, they were included in a list of recommended investments by Goldman Sachs for companies with good sales growth, profitability, and valuation characteristics.  The current average target price for the eight analysts covering Harmony Biosciences is $63.00 (+92.7% above the current stock price).   

The probability that Harmony Biosciences' stock is above the strike price on the April 21st options expiration date (in which case the Puts expire worthless and the maximum potential profit is achieved) was 73.0% when this position was established.  Just prior to establishing this position, a comparison was made to determine whether establishing a Covered Calls position or a Cash-Secured Puts position would be preferable.  For this Harmony Biosciences position, selling the Puts was preferable since it provided a tighter bid/ask spread ratio and the potential for a slightly higher annualized-return-on-investment. 

Harmony Biosciences Holdings, Inc. (HRMY) -- New 100% Cash-Secured Puts Position

As detailed below for this Harmony Biosciences 100% Cash-Secured Puts position, there is potential for a +3.6% absolute return in 19 days (equivalent to a +69.2% annualized return-on-investment).  As a consequence of the high Implied Volatility of these HRMY Puts, I am very pleased with this attractive potential result--especially given both the large 9.0% downside protection to the strike price and an approximate 73.0% probability of achieving the maximum return-on-investment potential with this investment.

The transaction today was as follows:
4/3/2023  Sold 5 Harmony Biosciences April 21st, 2023 $30.00 100% Cash-Secured Put options @ $1.05 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 five Harmony Biosciences Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Puts Net Investment: $14,478.35
= ($30.00 - $1.05) * 500 shares + $3.35 commission

Potential Net Profit:
(a) Options Income: +$521.65
= ($1.05 * 500 shares) - $3.35 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Harmony Biosciences stock is above the $30.00 strike price at the April 21st options expiration): +$0.00
= ($105.00 - $105.00) * 500 shares

Total Net Profit [If Harmony Biosciences stock price is out-of-the-money (i.e. above $30.00 strike price) at options expiration]: +$521.65
= (+$521.65 options income +$0.00 dividend income +$0.00 capital appreciation)

Potential Absolute Return-on-Investment: (If stock is above $30.00 strike price at the 4/21/2023 options expiration) : +3.6%
= +$521.65/$14,478.35
Potential Annualized Return-on-Investment: +69.2%
= (+$521.65/$14,478.35) * (365/19 days)

Regards and Godspeed,
Jeff Partlow (The Covered Calls Advisor)
partlow@cox.net