The up-and-down gyrations and concern of a broader market correction are enough to scare even the hardiest traders. But if you think there’s nothing to be found in this kind of market, look no further than Myriad Genetics (MYGN). MYGN sports a rare combination of low market correlation, limited risk options to position with and the most constructive-looking chart I’ve come across.
In other words, the prognosis for bullish investors looks great.
Myriad Genetics is, according to Yahoo Finance’s business summary, “a molecular diagnostic company, [that] focuses on the development and marketing of predictive, personalized, and prognostic medicine tests worldwide.”
For trading or investing purposes, Myriad Genetics is very interesting. Despite a long history of profitability, solid free cash flow, no debt, a forward P/E of 20, and ties to the once-raging hot and now cooling off healthcare and biotech spaces, MYGN stock somehow hasn’t caught the attention of more aggressive bulls.
That’s not to say Myriad Genetics hasn’t caught any interest. In fact, bears have shorted a massive 65% of MYGN’s stock float according to Yahoo.
Caveat: I researched the concerns around the stock as much as possible, but I’m not a doctor and make no claim as to the accuracy of the following. Further due diligence is required!
The shorts’ collective position in MYGN stock, which has been going on for more than a couple years, looks to be related to a few factors: competition, worries over patents holding up and possible concerns of heavy revenue reliance on its Bracanalysis testing.
More recently, and apparently not deterring bears just yet, reports from late last year suggested Myriad Genetics Prolaris test “could save the healthcare system $6 billion over 10 years.”
Myriad Genetics Stock Daily Chart
Now, back to where I do have some competence in diagnosing Myriad Genetics. The supplied chart is a look at MYGN’s monthly price history. Shares of MYGN are still about $38, or roughly 40% removed from its all-time-highs set back in late 2000, but Myriad look set to move aggressively higher.
After tumbling hard in the following couple years, Myriad Genetics has been grinding its way higher in a couple of long and drawn-out price waves. More importantly, all the technical work involved during this period looks close to paying off for bulls.
Over the past 18 months, shares of MYGN have consolidated in a descending triangle pattern near its financial-crisis highs of $44.90, established in March 2009. As alluded too, Myriad Genetics stock has virtually no correlation to the broader market — the reason behind this otherwise odd price behavior.
Myriad Genetics stock’s stated Beta is -0.10. But consider that MYGN made its 10-year high exactly when the market was scoring its historic lows — and is only now, getting back to those prices.
Enough said.
Myriad Genetics has no real correlation with a market that could be moving into a prolonged period of unhappiness for bulls. Combine that with heavy short-interest for upside fuel and a nice triangular pattern that’s on the cusp of seeing a breakout, and MYGN has the most constructive chart I’ve come across.
Myriad Genetics Long Call
In early trade Wednesday, shares of Myriad Genetics are up about 4%. While MYGN is trading on the same side of the broader market, it’s doing it with much stronger resolve, thus continuing its tradition of non-correlation.
Checking the Myriad Genetics options board, the October $40 call looks attractive up to $1.35. With MYGN’s technical situation looking ready to bust a move higher and fairly illiquid options, this out-of-the-money bullish bet is a blend of practicality, risk and reward.
By using October options, we’re allowing a couple weeks before time decay becomes an issue. Second, as September and October have the dreaded reputation for corrections, a bullish bet on a breakout and upside follow-through seems less crazy thanks to Myriad’s lack of correlation.
Lastly, while liquidity is low in the options, the heavy shorting of shares has been priced favorably into the call options, which sport a lower skew than the same strike put and trade below MYGN’s underlying stock volatility. All told, I don’t bet against short interest often, but Myriad Genetics makes a compelling case to break the rules sometimes.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT
