re: "my strategy was to buy 1000 shares and sell 50 vyjal(Jan 2003 60 calls)"
Selling covered calls is one of the few options strategies that consistently makes money. The plan sounds reasonable. However:
1. I think he'd probably make more money selling near-term calls every month. With the volatility in the stock and the market, options have a big time premium now. Time premium evaporates mostly in the last few months of an option's life. Of course, this means paying attention, and doing something every month. If you just want to set it up and forget about it, his strategy is probably better.
2. I think he could sell calls with strike prices a lot closer to today's stock price, with little chance of the calls getting in-the-money. But, my evaluation of the market, sector, and stock is a lot gloomier than most, so you may reach different conclusions.
3. look at the LT AMGN chart, as a proxy for the sector. I didn't use IMNX, because there are company-specific things there, and I want to show the sector pattern:
siliconinvestor.com
The chart has a pattern: a couple of years of strong gains, when the sector is in favor, followed by a year or so at a high plateau (higher each time), followed by a sharp selloff that breaches the 50M (=200W) moving average. The selloff usually then needs to form a basing pattern, where it repeatedly reaches or breaches that 50M MA, over the course of a year or so. Today, we are in the "sharp selloff" part of the cycle. AMGN's 50M MA is at 35, and we haven't even reached it once yet. That is, we have yet to even start the basing pattern, and, once we have, we are likely to get many chances to buy near the bottom. What I'm saying is, now is not the time to be buying biotechs. It's too early. Buy any biotech today, and you are likely to be able to buy at the same or lower price, in 2002. The only exceptions to that will be companies with unexpected news that is very positive, so they can move against the sector trend. These exceptions will be rare, and impossible to predict in advance.
4. One thing that must be constantly guarded against, is falling in love with a stock. Lots of investors thoroughly understand the technical details of a high-tech (silicon or DNA-based) company, and get so enthusiastic about a company's prospects, that they are blinded to the sector risk, and the market risk. When a sector goes out of favor, everything gets sold off. Mr. Market throws out the good, the bad, the baby, the bathwater, the kitchen sink. Everything. Ignore this risk, and you are going to get blind-sided by some breath-taking valuation compression.
5. In spite of all the above, I think the biotech industry is moving out of it's Childhood, and moving into the Young Adult stage. I think of industries going through life stages, just as people do. The transition from childhood to adulthood happens when you start to see a significant number of companies in the sector make profits. In childhood, the sales are growing rapidly, but profits aren't happening yet. If you buy a stock because the company has sales growth (but not profits), then you're buying air (hopes and promises). Lots of horrible recent examples: B2Cs, CLECs, and most of the biotechs (still). So, I may be picking up some profitable biotechs (a basket of small positions), sometime later in 2001, or (more likely) in 2002. Again, there is no reason to hurry, and many reasons to wait and watch. |
