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9:00am (EST)
It was another day of flat action for the market but this time the bears made it a clean sweep as all 3 of the major indexes fell on Wednesday. We will cover the official numbers, quickly, because the real drama happened after the close.
The Dow fell 27 points to close at 12,938 after touching a low of 12,914. The 12,900 level is holding up well but more importantly we are watching 12,800 on a continued pullback.
The S&P 500 slipped 5 points to settle at 1,357 after kissing 1,355. Support at 1,350 has been money and the bulls are safe down to 1,325 before we would worry.
The Nasdaq dropped for the second-straight session after giving back another 15 points, or 0.5%, to end at 2,933. The low came in at 2,929 and support at 2,900 is still trying to be tested by the bears.
We are hoping Apple (AAPL, $513.04, down $1.81) has some good things to say today in its shareholder meeting that could juice Tech higher. They are on left-coast time so we don’t expect any news until later in the day but we are expecting them to wow Wall Street with something sweet.
Of course, all the water-cooler talk this morning is about Vivus (VVUS, $21.50, up $10.95) which has seen its stock price double overnight. Yes, the talking heads and slick-stuttering pros will be telling you all about their diet drug, Qnexa, which won pre-approval from a FDA advisory board yesterday and how to play it.
Shares were halted all of Wednesday after going out on Tuesday at $10.55 but opened late last night in after-hours trading to a $20 spot. Wow.
Our editor-in-chief first brought you the Vivus story in January 6, 2009 (quotes from that day):
“Orexigen Therapeutics (OREX, $5.89, down $0.10) was up sharply in after-hours trading on news that the company could be announcing something concerning its treatment drug for obesity, Contrave. The company will presenting at a JPMorgan (JPM, $29.25, down $2.10) conference next week which means the rumor mill got started early on what the company will say. The stock was up 20+%, or $1.30, to $7.20 in after-hours trading.
What surprises me is that it took until after the market closed for the stock to make a move as Wall Street seemed to ignore the fact that the company was awarded another patent for Contrave on Monday. It was the fourth patent for the drug which will provide protection until 2024.
Of course, Orexigen isn’t the only outfit trying to rush these new drugs to market. Vivus (VVUS, $5.37, down $0.12) and Arena Pharmaceuticals (ARNA, $4.22, down $0.03) are a couple of others. The race for the next generation of weight-loss drugs is on and all three companies are in phase 3 trials with results due this year. Orexigen appears to have the early lead in this race but there are always risks especially with biotech.” (END)
From January 5th, 2010 (quotes from that day):
“Another stock we are watching for future profits down the road is Vivus (VVUS, $9.44, up $0.24).
The company has a potential blockbuster drug with Qnexa, a treatment for obesity that could be available in early 2011. The company said two late-stage clinical trials went well and asked regulators to approve its drug a week ago.
Vivus has some competition as other “diet’ pills are also expected to debut. Arena Pharmaceuticals (ARNA, $3.52, down $0.03) has also asked the FDA to take a look at their obesity drug, Lorcaserin, while Orexigen Therapeutics (OREX, $7.12, down $0.32) is pushing Contrave by the first half of 2010.
Vivus is the best bet to capture this lucrative market as Wall Street believes Qnexa could be the top go-getter based on the weight loss observed in clinical testing.
Arena’s weight loss drug is safer but Qnexa is also being used in Phase 2 trials to treat diabetes. Talk about two-for-the-money. Imagine the cost savings of having the luxury to manufacture one drug to do two things.
It doesn’t stop there either. Vivus also has a drug, Avanafil, which is in phase 3 trials to treat erectile dysfunction and Luramist which is in phase 2 studies for the treatment of hypoactive sexual desire disorder in women.
The 52-week high for Vivus is $12.88 which was hit on September 10, 2009. We think the stock challenges this level again so file this one away. There will be a trade down the road.” (END)
Our Weekly Wrap hit pay dirt again as we should make around 40% if prices hold up with our current Vivus play. We traded Vivus as a covered call position and made profits of 18%, 17% and 14% in 2011. For 2012 our subscribers made another 17% in January and although our current trade is capped at 40%, we still stayed in Vivus and sold options on our positions as the calls carried hefty premiums at times. This is one of the beautiful secrets the knuckleheads DON’T tell you about covered call writing because they don’t know.
Listen, the pros will argue covered call writing limits your upside while the downside can be more extreme because you are “trapped” in a position. True to a degree, but A) you can also buy more shares when a stock gets cheaper to lower your cost basis. B) and this is the important part, when a stock you are in gets “called away” it doesn’t mean you can’t buy another 100 shares, or 500, to replace the stock you have to sell at the strike price.
Gee, that would be a smart idea huh? This way you DON’T miss a continued run higher! Vivus is a prime example of this strategy playing out and remember, five 20% winners double your money.
Anyway, our Weekly Wrap subscribers will likely have to sell Vivus at $15 if shares are above this level in mid-March and will make another 40% but they have already doubled their money from the start of last year so we haven’t missed anything. Each time we were called away, we reloaded on the stock and we will show you the math in our afternoon update.
Even better, we also recently suggested a trade for Arena Pharmaceuticals (ARNA, $1.81, up $0.01) for our Weekly Wrap and listed some options on our Watch List for the Daily.
Judging by the hundreds of emails we have gotten in the past 12 hours alone, people are going to be making some money today and we love it! Vivus, Las Vegas. For those who don’t follow us on the regular and shorted the stock, start covering.
Futures are up as we head to press and look like this: (Dow +20); S&P 500 (+2); Nasdaq 100 (+7).
Subscribers, check the Members Area for the updates and we will see you again shortly.
More on Vivus (VVUS)…
Thursday, February 23rd, 2012
12:50pm (EST)
We wanted to talk a little more about covered calls because we really want you to broaden your horizons when it comes to investing. It’s no secret how much money buying the right call or put option can make you if you pick the right option on a stock but everyone should have an investment strategy where they have “safe” money and “speculative” money. The safe money earns you double-digit gains, the speculative money tries to hit the triple-digit gains.
Option traders love fast triple-digit “homerun” gains in a day or two or even a week but many of them overlook the “singles”. Vivus (VVUS, $20.00, up $10.00) has been a name that not many traders follow but we can bet they are trying to trade the options and stock today. It is all over the news on how the company won pre-approval of its obesity drug, Qnexa, but we have been doing our homework on this company for years and although we just missed a huge trade for our Daily, here is how we played the stock in our Weekly Wrap all last year and into 2012.
In May 2011, we recommended Vivus at $7.93 and sold 2 call options for a total of 80 cents which lowered our cost basis to $7.13. We were called away in August at $9 for an 18% gain.
In September, we recommended shares again at $8.45 and we sold October and November 9 call options for a total of 75 cents to lower the cost to $7.70. In mid-November, shares were called away at $9 as the stock was at $9.84. Our return was 17%.
The next week, we recommended shares again at $9.78 and sold the December 10 calls for $1.00 which lowered our cost basis to $8.78. In mid-December, Vivus was called away at $10 as the stock was at $10.09 on expiration day. The trade made 14%.
That same day, we recommended buying the stock again at $10.09 and selling the January 11 call option for 90 cents. This lowered the cost basis to $9.39. In mid-January, Vivus was at $12.04 so we were called-away once again. The return was 17%.
Knowing we might get called away in January, we also suggested on January 12, 2012 with the stock at $12.60 to reload the position and to sell the March 15 calls (VVUS120317C00015000, $5.10, up $4.15) which were going for $1.75. This lowered our cost basis to $10.85 but we will likely have to sell the shares at $15 if they maintain a price above our “strike price” until mid-March.
So here is our point.
If you had $8,000 and started taking these trades, the first trade would have made $1,250. The second trade $1,300. The third trade would have made you $1,220. The fourth trade would have made $1,610 and our current trade will make $4,150 if shares are called away at $15 in mid-March.
The total profits would add up to be $9,530. The return on the $8,000 investment would be 120%. So yes, we may have left a little on the table but by writing covered calls, we lowered our risk. If shares would have fallen to $5 on a negative vote, you still would have banked $5,380 from selling call options and we could have closed the trade out on the bad news and still made money.
This is another reason why the Wall Street pros who bash covered call writing have no clue what they are talking about. It was one of the reasons we started the Weekly Wrap newsletter to prove these knuckleheads wrong and to make you money.
Remember, we brought you the Dendreon (DNDN, $14.42, up $0.69) story at $4 before shares made a run past $50. We told you to get out at $40 last summer. We now like the stock again at current levels. We also gave you the Imax (IMAX, $24.69, up $0.73) story at $3 and was bullish up until the low $30’s which is when we told you to get out.
These two stocks are another reason we started the Weekly Wrap. Owning stocks require a little more trading capital and they don’t provide the leverage options do but when you use these two strategies together, man, can they be a powerful combination.
For those of you who do not subscribe to the Weekly Wrap, it is the SAFEST way to play options if you are a new trader and just learning or if you have a trading account under $2,000.
You can sell an option by owning just 100 shares of a stock so the above trades would have yielded the same returns if you would have started with just $800.
Our Weekly Wrap trades were 16-0 last year and we are 12-0 for 2012. We could have up to 10 more positions called away in March. We just added 2 new trades this week where we are expecting profits of 50% and 100% over the next 6-12 months.
If you are not a subscriber to this publication, we have ran specials in the past but we have come to the point where we are on the verge of exploding as subscribers take notice and trading firms find out about our research.
We have kept the price low for those of you who took a flyer and believed in us and we want to offer one more special to everyone who is not a subscriber. One trade will probably pay for this low introductory offer so take notice.
We are offering a special 3-month membership to the Weekly Wrap that we will probably never offer again because the publication is starting to speak for itself. This special rate is for current members and new subscribers and for those of you visiting the website today. We will not advertise this rate either and it will only last through the weekend.
As far as the 2 trades we entered this week, one stock is priced at $9 and we have a 6-12 month target of $15. The other is a stock that could go from $4 to $8 in 1-2 years.
You can sign up for a one-time 3-month membership to our Weekly Wrap newsletter for only $129 to get these 2 new trades which are still at these low levels. This is a 50% savings off our regular subscription price and averages out to just $43 a month. Use promotion code A0FB422004. Please associate with Weekly Wrap 3 month Subscription (Reg. $261).
3-month Weekly Wrap membership – $129 – use coupon code A0FB422004 and go here:
https://secure.MomentumOptionsTrading.com/amember/signup.php
As far as the market, the bulls have finally showed some strength after Monday’s big pop at the open and are pushing our fluff targets once again.
The Dow is higher by 44 points to 12,982 while the S&P 500 is up by 4 points to 1,362. The Nasdaq is higher by 20 points to 2,953.
We also have profits to take in another call option trade as shares have fallen below our Hard Stop. We were able to book profits of 36% but we will be back to trade the options again. It is a $12 stock that is going to $20 this year. Count on it.
Make sure you hit us up on our Weekly Wrap offer to start adding even more profits to your portfolio.
Subscribers, check the Members Area for the updates and we will be back in the morning with our next update.
Tags: covered call trading, Covered Calls, VVUS, VVUS call options
Posted in Covered Calls, Hot Stocks, Market Commentary, Money Management, Strategies, Trade Update, Trading Psychology, Trading Tips, Weekly Wrap | Comments Off