Last week, I introduced you to Hetty Green. This week, I want to ruminate a little more on her most important piece of wisdom: "Act with thrift and shrewdness and be persistent." As market volatility picks back up, it's a good time take Hetty's approach to heart.
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I believe there is a level of shrewdness in ignoring the broader market when making trading decisions, unless your goal is trading the market. If, for example, you are buying S&P 500 futures, then you need to focus on the broader market. But if you are looking for individual stocks, then the broader market is less important.
Now, as you may remember, Hetty was called the "Witch of Wall Street," so we probably shouldn't aim to duplicate all of her traits. But staying focused on persistent shrewdness is certainly a worthy ambition.
I was thinking about Hetty's shrewdness this week as I ran across some news about AbbVie (NYSE: ABBV), one of the world's largest drug makers -- and one of my all-time favorite trade targets.
An Income-Producing Classic
This is a company I've written about before. (We've now sold put options on ABBV four times, and all four trades were winners.) The stock has long been a market leader but recently experienced a sharp selloff.
That steep selloff late last month -- a 13% decline in one day -- came after the company abandoned plans to seek accelerated approval for a lung cancer drug that performed poorly in a mid-stage trial.
The drug, Rova-T, was tested as a third treatment in small cell lung cancer in patients that either relapsed or didn't respond to other therapies. At 12 months of treatment, the probability of survival was 17.5%, in line with what the company was expecting.
But the drug was tied to a number of adverse events. About a third of patients experienced fatigue, sensitivity to sunlight, a buildup of excess fluid around the lungs, swelling and/or nausea.
Rova-T is still in Phase 3 testing for the drug as first and second treatments in the same form of advanced lung cancer. Data in those trials are expected after 2020.
I believe the market reaction was excessive. If approved, Rova-T is expected to generate sales of about $200 million to $400 million a year -- not nearly enough to affect the bottom line of a company that reported more than $28 billion in sales over the past 12 months.
Most of those sales came from Humira, which produced more than $18 billion in sales last year in the rheumatoid arthritis (RA), Crohn's disease, and eczema markets -- including $12.4 billion in the United States alone.
And as investors would hope, AbbVie is taking shrewd steps to protect this market.
While a number of companies are working on creating Humira biosimilars (similar to generic drugs) in the United States, and AbbVie is turning to the courts to prevent their launch. Like generics, biosimilars sell for lower prices than their counterpart drugs, and that presents a problem for ABBV.
In the United States, two companies (Boehringer Ingelheim and Amgen) are already approved to produce Humira biosimilars. Biogen is also ready to launch a biosimilar, but reached an agreement to delay introduction of the product in the United States until June 2023. And while the company is still scheduled to launch its product in Europe in October of this year, it will be paying AbbVie royalties on sales. Thanks to a similar agreement, Amgen will delay launching its biosimilar until January 2023.
These shrewd steps will protect ABBV's revenue for the years to come. They should also relieve some of the short-term selling pressure in the stock. Of course, that short-term selling pressure increased the stock's volatility and temporarily elevated options premiums -- which means my subscribers and I have an opportunity to grab an outsized amount of income relative to the very low amount of risk we're taking on.
Now is the time to benefit from the higher volatility by selling a put option in ABBV.
How I'm Trading This Stock -- Without Buying A Single Share
If you're interested in catching some of the potential upside, you can always buy shares of ABBV and wait for the market to catch up to this well-positioned company.
But I found a better trade... One that will guarantee I collect 2.9% in income in just two weeks. That's a more-than-comfortable 72% annualized. And all without buying a single share of the stock. This trade uses a high-income, short-term put option on ABBV.
Now, I understand not everyone is comfortable selling options, but you shouldn't let that fear or nervousness keep you from taking advantage of this tool. Because that's what options are -- a tool for traders. They can be as risky or conservative as you want them to be. It all depends on the strategy you're using.
My strategy is one of the safest around. In fact, I'm making a guarantee to new subscribers to show how low-risk options can be:
If you follow along with my trades and don't make money at least 90% of the time... I'll work for you for free. That's how confident I am.
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