One of the places I check for ideas/inspiration to sell puts for income is the Yahoo Finance page’s “Losers” for the day. It provides a snapshot of companies that have taken an unusually large hit for that day. I use this page to scout out any names that look familiar to me (i.e. if Nike takes a few percentage hit, I know Nike will be around in a few months so that is where I start my research for selling puts). What does this have to do with Pharmaceutical and Biotech Companies? Everyday, day in and day out, they make up the majority of the list.
Example of Daily Stock Losers List
|Symbol||Last Price||Change||% Change||Volume||Avg Vol (3 month)||Market Cap|
|Globus Maritime Limited||711,598|
|Christopher & Banks Corporation||279,051|
|Cellect Biotechnology Ltd.||134,166|
|Progress Software Corporation||200,648|
|Art’s-Way Manufacturing Co., Inc.||8,882|
|Concert Pharmaceuticals, Inc.||142,264|
|Entravision Communications Corporation||289,200|
|Bank of America Corporation Cla|
|Eastman Kodak Company Warrant (|
|Sunshine Heart, Inc.||1.852M|
|Arista Networks, Inc.||709,738|
|SunTrust Banks, Inc. Class B Wa|
|Audentes Therapeutics, Inc.||62,517|
|Beasley Broadcast Group, Inc.||7,596|
|Comerica Incorporated Warrant e|
|Platinum Group Metals Ltd.||517,483|
|HollySys Automation Technologies, Ltd.||287,811|
|Interpace Diagnostics Group, Inc.||5.046M|
|ZAIS Group Holdings, Inc.||79,372|
|Farmers Capital Bank Corporation||43,306|
|ACRE Realty Investors Inc.||28,354|
Of the 30 stocks listed a good third are involved in the medical space. I understand that I am only presenting one day’s data, but it is consistently the same. It wouldn’t make me feel better to know the opposite picture (day’s gainers) had the same percentage in small (or micro) cap pharma or biotech companies. In fact, it would make me feel worse! That is some tremendous volatility.
You are Investing Based on Someone’s Hearsay
I have a hard time believing that most people jumping into a $25,000,000 company found that company through a credible stock screen. It is more likely they heard from a guy who heard it from a guy who heard it from a 3rd guy that the government is going to approve some new drug or some huge contract is going to come through. It gets worse when you find yourself on some message board since everyone there is likely to be a cheerleader.
You not only have to Get the Market Right You Need to Get the Medicine Right
The Federal Drug Administration is one hell of a formidable speed bump if you are bringing a drug or medical device to market. I, as a consumer, for the most part is comfortable making it extremely hard to bring something to market. Does this prevent some drugs from coming to market that probably should? I would assume so, but this isn’t the place to debate the issue. Rather, the point is that not only do you have to get the market for the drug correct (i.e. there is a demand), you have to get it through multiple stages of the FDA.
These companies are so tiny that even the slightest hiccup crashes the stock!
People Can Make Money but it Won’t be Me!
Without insider information, of which I am not willing to participate, I can’t imagine how I could make money investing in these tiny pharma and biotech stocks. Even if I read their 10-K report there is zero chance that I would understand anything that is going on. Where do I even begin understanding that drug xyz alters your chromosomal makeup to suppress your need to eat absolute garbage? Let’s assume that I could, somehow, understand it – do you think a retail investor is really going to receive the information to truly know whether the tests are going good with the FDA? I think not.
Ever get lucky on one of these types of companies?