You’re no doubt aware that over in the UK, Prime Minister Boris Johnson threw a hissy fit, spat the dummy, and threw the teddy bear out of the cradle. In other words, he departed from the narrative entirely, dropped all mask, testing, and social distancing BS and said, “Let’s just learn to live with Covid.”
This is an unmitigated disaster.
Sure, we get that he was under pressure from five year olds saying he has to go to the naughty center and step down. Clearly, he’s on the block and the ax is about to fall.
So he decided to do what he wanted to do all along and just let the virus run its course.
In case you forgot, this is precisely the policy he originally started following (along with Sweden), but was dissuaded from it by someone who probably had a lot of influence. Given that money buys influence, we can probably assume money as well.
Hmm… who could that be?
As you can imagine, this has been a disaster for Moderna and Pfizer.
Moderna was already struggling after having been put on hold in Japan because of the insane level of adverse reactions. However, I was expecting the rest of the world to follow Australia and mainland Europe, put their collective heads in the sand, and mandate quarterly shots of Moderna for eternity.
Close out the Moderna Vertical Call Spread
Boris Johnson’s announcement has really thrown a spanner in the works (along with a general market fall). As a result, our Moderna position is down a whopping 90%. Back on December 17 I recommended you buy a 300/350 vertical call spread expiring in June 2022 to profit from huge number of vaccine mandates that will translate into ongoing profits.
However, politicians like Johnson and Japanese bureaucrats not towing the line is likely to lead to other governments relenting on the vaccine mandates. This is a real drag on the stock, along with the general malaise in the stock market which seems to be about the fiction of Fed rate hikes.
This position still has about $500 of equity, but as Moderna would have to double in price from $157 to over $300 for us to make any money, I recommend closing the position and taking the loss today.
We got screwed on ARNA. We may open a new position later in the week.
You’ll recall that I recommended buying Arean Pharmaceuticals ARNA $90 call options expiring on January 21 because of Pfizer’s takeover offer of $100 per share. These cost 0.30 each ($30 per contract), or $3,000 for a 100 contract position.
Unfortunately, someone decided to drive ARNA down to $89.95 at close on January 21 — 35c from our breakeven. The stock then popped to $90.74 in after market trading. This didn’t help us, so our position expired worthless for a $3,000 loss.
However, there is still money to be made out of this takeover arbitrage. The world hasn’t lost faith in Pfizer. In fact, over in Japan where they’ve fallen out of love with Moderna, the government has just approved the Pfizer vaccine for kids aged 5-11. So Pfizer definitely has more than enough profits in the pipeline to buy Arena.
The question is, Will it still be worth what it is a month from now?
I think so. I see no reason for the stock to tank. The two main uncertainties are a) whether the company will have to pay more, and b) the timing. These two are also related, because if the board changes its mind, then Pfizer could potentially pull out of the deal.
This is unlikely. But even if it is impossible, there’s still room for perceived uncertainty to drive the price down. I’ll watch this over coming days to see which way it is going to go.
Take final profits on your Pfizer calls
I still have a lot of faith in the leaders of the free world to force vaccinate their citizens for the next year or so, so I’m still bullish on Pfizer.
It’s incredibly absurd in Melbourne where two people self-immolating themselves in protest against the vax mandates has had zero impact because the population is still scared stiff of a disease everyone is going to get. Heck, one guy here in Melbourne faked a medical emergency just so he could get a PCR test at hospital to see if he was Covid positive.
People are lining up for the clot shot.
However, Pfizer has fallen along with the rest of the market and is now at $51.54, which is well below our option strike price of $65.00.
Right now the implied volatility of the sudden fall has propped up the options price, which is why it’s still in positive territory. I recommend closing it out today at 0.68 ($68 per contract), or $1,020 for the remaining 15-contract position. This is a modest 11.5% profit. Take as low as 0.60 if need be.
I’ll probably recommend calls on Pfizer again. However, right now the market is so volatile that good news in one stock is more likely than not to be wiped out by the overall market sentiment.
Cheers,
Peter.
Update 31 January: Options closed out
Pfizer June 65.00 call at 0.77 for a 0.16 profit ($16 per contract, or $240 for the remaining 15-contract position)
Moderna June 300/350 call spread for 1.65 ($165 per contact, or $495 for our 3-contract position for a loss of $4,035
