Here's How I'm Playing an Increasingly Volatile Market With These 2 Biotechs

The markets have been rocked this week by escalating trade tensions between the U.S. and China as well as potentially new tariffs on the horizon. As an investor, I abhor the approach the POTUS is taking towards this task and the volatility that it has brought to equities. My non-investor half applauds having a leader who is finally tackling a long overdue issue instead of punting on it like several of his predecessors. The Chinese have been employing cyber theft, rampant intellectual property abuse, huge subsidies to state-owned enterprises and myriad other trade violations in a mercantilist way for over two decades now with few repercussions or consequences. The hold up in arriving at a new trade deal seems to be around the enforcement mechanisms and structure. This is an essential part of any agreement, probably the most important. Without a robust structure to enforce the deal and punish violations, any agreement is essentially worthless. Promises from Chinese leadership from terms of WTO membership to non-militarization of the South China Sea have lasted about as long as an ice cream cone in Manhattan on a hot August day. I also think the U.S. has leverage given our strong domestic economy and robust jobs market. The Chinese are the ones with the most pressure. For every week of delay, more and more factories depart to the likes of Vietnam, Malaysia, India, etc., never to return again. I am still optimistic some sort of deal will eventually be reached, as both sides have every incentive to get one done. However, it may take longer than originally thought. This headwind could continue to deliver negative impacts to the markets in the weeks and the months ahead. Therefore, I am just 'nibbling' on this week's decline. I am incrementally using buy-write option orders to add some shares to core holdings. Early Monday, I took the initial selloff in the markets to initiate a buy-write on Holding Pen position Biomarin Pharmaceuticals . Using the January $85 call strike, I fashion a buy-write order with a net debit (stock price - option premium) of $73.20 a share. Anything between $73.00 to $73.50 seems a good entry point on this name. This nicely mitigates risk and is a very good potential return for an eight and a half month hold period. The stock is near 52-week lows and has found support just under these levels a few times over the past year. Last week both Cantor Fitzgerald ($131 price target) and Jefferies ($125 price target) reissued Buy ratings on BMRN. Here is what the Jefferies' analyst had to say about Biomarin. BioMarin is set to report topline three-year Phase 2 data for hemophilia A gene therapy valrox by June 7, including clotting factor VIII levels, annualized bleeding rate, and factor VIII usage, Jefferies analyst Eun Yang tells investors in a research note. The analyst estimates potential valrox market size at $12B in the U.S. and $10B in Europe. As such, valrox, if efficacy is durable, has the potential to be the largest product for BioMarin. After surveying 26 U.S. hematologists, the analyst believes doctors are focused more on the clinically relevant bleeding rate for valrox utilization, in line with BioMarin's position, versus the Street's focus on factor VIII levels. If valrox is approved and 10%-30% of patients receive valrox thru 2023, the analyst sees 11%-30% upside to her current price target of $125 for BioMarin shares Tuesday, I followed the same approach with BioDelivery Sciences . This small biopharma delivered another rock solid quarter before the bell yesterday and saw record growth in its core product, BELBUCA. Despite that, the stock was off a few percent during the selloff at midday. I used December $5 calls to do some buy-writes with a net debit of $4.10. I consider both names long term holdings, getting paid in the low to mid-teens if their stocks just stay at current trading levels over a roughly eight-month period seems a solid single to me. And that is how I am playing an increasingly volatile market until these trade tensions get resolved.

Here's How I'm Playing an Increasingly Volatile Market With These 2 Biotechs

I am incrementally using buy-write option orders to add some shares to core holdings.

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