I have been following Exact Sciences (EXAS) for a few years now and have recommended bullish stock and option trades at various times to play the company’s drug pipeline. At the top of the list is Cologuard, a drug that recently gained FDA approval for its molecular screening technology that detects colorectal cancer.
Biotech option trades are some of the most lucrative investments on the planet, as stocks in this sector can make tremendous moves based on drug approvals, disapprovals and clinical trials studies. It is not uncommon to see biotech stocks move 30%-50%, or more, based on such news and events.
By keeping track of company pipelines and what their drugs do, it can often lead to even greater returns in options. The goal is to give these trades plenty of time for trial results to play out and to keep up with the headlines regarding when companies are presenting at conferences or meeting with Wall Street firms.
On Aug. 8, I had my Momentum Options subscribers get into both the EXAS September 18 calls (EXAS140920C00018000) and the EXAS October 19 calls (EXAS141018C00019000) for around $0.75 each. I targeted an exit of $1.50 for both options.
The options hit their targets – and then some – on Aug. 12 when EXAS announced it had received FDA approval for Cologuard.
I decided to lock in partial profits on the two call option trades for 147% each by closing half of the contracts for both calls at $1.85. Later in the day, as EXAS shares settled, I took my own advice to not get greedy. I closed the remaining EXAS September 18 calls at $1.25 and the EXAS October 19 calls at $1.35 for average gains of 107% and 114%, respectively.
As a trader, it’s important that I stick to the parameters of my recommendations – “plan the trade, trade the plan” are words I live by. So, when my target was surpassed, I took the gains on half of each position and left a few contracts in place to play with the “house’s” money before ultimately closing the trade.
I may revisit EXAS with another options trade before long because I like the company’s prospects. In the meantime, there’s room for a stock trade at current levels for those traders who prefer to buy the shares. Following a recent back test to $15, shares have been holding a trading range of $15-$17.50 since early June.
My original view was that EXAS could be a $20-$30 stock after receiving FDA approval for Cologuard. At this time, with the stock around $17.30, I am still hopeful Exact Sciences can trade into the $20s.
Just keep in mind that biotech stocks are risky investments because they can rise or fall dramatically as drugs go through different phases of approval. Naturally, an approval of a drug can send shares soaring 30%-50%, or more, while a veto can have the opposite effect.
