Options Play of the Week: Dipping Into Dynavax

Sometimes I think that most of the trading in the markets now is driven by unthinking bots powered by algorithms. Indeed, attention spans seem to be shortening by the year among investors. It seems few actually read through earnings calls transcripts anymore. This can lead to myriad knee-jerk reactions as quarterly numbers fly across the wires during earnings season. However, this can also provide numerous opportunities for those of us that perform our due diligence. Case in point was the trading in Dynavax Technologies on Friday. The stock fell nearly 25% on the day after the company posted third-quarter results. Dynavax did post a net loss instead of the small profit investors were expecting. However, the net loss was solely because of a $45 million fair value adjustment on warrants -- a non-cash expense. Management also said sales of its Heplisav-B hepatitis B vaccine could fall 15% to 30% in the fourth quarter (which they historically do). The company did up its 2021 revenue guidance for its CpG 1018 vaccine adjuvant to between $375 million to $425 million from $300 million to $400 million. And leadership sounded positive that this same adjuvant could also be used for other types of vaccines such as the plague, for which it recently received a $22 million Department of Defense grant. But disappointing guidance and results from Moderna and a potential Covid-19 pill from Pfizer admittingly soured investors -- at least for the day -- on the Covid-19 vaccine space. On the hepatitis B front, earlier in the week the CDC Advisory Committee on immunization practices, or the ACIP, voted unanimously to recommend that all adults 19 to 59 years of age should receive hepatitis B vaccination. This is good news for the company's Heplisav-B best of breed hepatitis B vaccine. This product provides significantly more protection than the long time standard of care from GlaxoSmithKline . Just as important, protection can be achieved in two doses over one month rather than three doses over six months, which has been the standard for a very long time. This obviously increases compliance substantially, which is why Heplisav-B is rapidly gaining market share. Dynavax management, because of this, now believes the U.S. market for Heplisav-B could be $800 million annually, up from $600 million previously. Heplisav-B's market share in the hepatitis B vaccine market in the U.S. is now at 33.5%, increasing three percent of market share from the prior quarter and up from under 25% from the same period a year ago. Heplisav-B sales rose to an all-time record of $22.7 million in the third quarter, from just $13.7 million in third-quarter 2020. And Dynavax made a lot of strides in the retail market where sales advanced 93% on a year-over-year basis. The company produced some $216 million of cash flow from operations in the first nine months of the year and now has a cash hoard of over $400 million. The company is still being challenged (who isn't these days?) by the impact of the pandemic as far as the continued rollout of Heplisav-B. It's hard to find many negatives here other than the bottom-line miss. In fact, Cowen & Co. maintained its Outperform rating on DVAX after quarterly numbers posted and raised its price target 50% to $30. Option Strategy Here is how one can initiate or add to a position in DVAX via a covered call strategy. Covered call orders involve buying an equity and simultaneously selling just out of the money call strikes against the new position. Using the April $15 call strikes, fashion a covered call order with a net debit in the $11.80 to $12.00 a share range (net stock price - option premium). This strategy provides approximately 25% of downside protection as well as the same 25% potential upside even if the stock does nothing over the option duration.

Options Play of the Week: Dipping Into Dynavax

Knee-jerk reactions to earnings results can create attractive opportunities.

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