Category Archives: Hedging Strategies

Celsion, Facts And Risk Management [Optionity]

The all-important result for HEAT phase III clinical trial for hepatocellular carcinoma in the liver will be released soon. Celsion Corporation (CLSN) had been on a bullish run until Wednesday, which triggered the circuit breaker on around 1:30PM. CLSN further declined 9.75% on Thursday and closed at $7.31 due to the downgrade by Brean Capital.

Downgrade and Assurance

Brean Capital downgraded CLSN from Buy to Sell and reduced its target price from $7 to $1. The firm stated,

“Recent share price strength places the valuation at a level where we expect more downside from negative results than sustainable upside from positive results. We question the sustainability of a positive valuation inflection upon the potential showing of a progression free survival, PFS, benefit due to the need to show at least a clinically meaningful overall survival (OS) benefit thereafter, which after only a single administration of one active therapy, RFA, versus two active therapies (RFA and ThermoDox), appears more difficult than benefiting PFS, given the introduction of any additional therapy between progression and death. Despite the HEAT trial’s SPA, meeting the PFS primary endpoint is not a shoe-in for approval without at the very least a strong numerical OS advantage for those treated with ThermoDox.”

Fortunately, good news remain for CLSN bulls as Keith Markey from Gilford Securities said, “one source indicates that the % of shares sold short dropped by 50%.” Markey also indicated he spoke with Celsion’s CEO, Michael Tardugno, Wednesday afternoon and was assured the Company had not released any information regarding its pivotal trial. Until the actual release, anything about the results will only be speculation.

Scientific, Logical Work and Intelligence

Is it pure speculation? For bullish investors, two articles are highly recommended for review. “Celsion’s Phase III Blockbuster Data Revealed And It’s Been Right Underneath Your Nose” and “Celsion’s Phase III Blockbuster Data Revealed And It’s Been Right Underneath Your Nose – Part 2.” The insightful contributor from Seeking Alpha, Alex Heisenberg, had compiled the existing data and concluded that “The phase III data will show that ThermoDox works for the majority of patients showing a very large improvement in PFS and even a cure for a good number of patients.” Mr. Heisenberg’s work was highly scientific and logical. This should remind every investor that researching, analyzing, and understanding the fundamentals is the root for the success of investing. Of course, there will be always risks of unknown or “accidents”, so this article will address the part on risk management, which should help bulls to achieve more favorable risk and reward ratio.

Reviewing Options

For long-term bulls who are comfortable owning CLSN at $7.31, how about owning the stock at $2.26, while making a potential gain of 92.31% on margin if CLSN closes above $2.50 on February 16, 2013? This could be achieved by setting up the following options credit put spread:

  • Short 1x Feb. 16, 2013 put at the strike price of $2.50 for the credit of $0.64
  • Buy 1x Feb. 16, 2013 put at the strike price of $2.00 for the cost of $0.40

The maximum profit is $0.24, and the maximum risk/margin requirement is $0.26 ($0.5 loss – $0.24 credit received). If CLSN close above Feb. 16, 2013, 92.31% return on margin will be gained. If CLSN falls below $2.50, CLSN stock will be acquired at $2.26, which is 69.08% cheaper than the current price of $7.31. The credit spread will also benefit from time decay and volatility collapse.

For more advanced options traders, it may be a good time to review iron condors or ratio spreads. For outright long call and put traders, time decay and volatility collapse needed to be highly concerned.

For stock holders, buying stock with a put protection will significantly reduce the downside risk while achieving more favorable risk/reward in the short-term.

In Short

Intelligence, derived from scientific data and hard work, plus risk management should give investors the best risk/reward ratio for their investment. After all, the success of ThermoDox will not only be highly important for CLSN investors but also critical for liver cancer patients.

Note: All prices are quoted from the closing of January 17, 2013 and all calculations are before fees and expenses. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.

Intel And CES: Moving Forward With Power Saving And Mobility [Seeking Alpha]

Intel Corporation (INTC) is the largest chipmaker in the world. As the Consumer Electronics Show in Las Vegas continues on, Intel continues to show its ability to innovate. Intel’s latest announcement included a new smartphone platform for emerging markets, details on a forthcoming 22nm quad-core SoC for tablets, and more personal and intuitive Ultrabook™ devices.


As reported by MarketWatch on Monday, Intel unveiled a new version of its Atom (formerly “Lexington”) that uses lower power and is designed for low-cost smartphones and tablets. As stated by Kirk Skaugen, general manager of Intel’s PC client group, “(the company) is significantly extending the performance and power savings in Atom processors as we accelerate our mobile offerings in an unprecedented fashion in 2013.” As announced, the new value offering includes many high-end features including the Intel Atom processor Z2420 with Intel Hyper-Threading Technology that can achieve speeds of 1.2 GHz, 1080p hardware-accelerated encode/decode, and support for up to two cameras delivering advanced imaging capabilities, including burst mode that allows people to capture seven pictures in less than a second in 5-megapixel quality. The platform also includes the Intel XMM 6265 HSPA+ modem that offers Dual Sim/Dual Standby capability for cost-conscious consumers.

Read MORE.

Apple is not a Value Trap but reducing beta makes sense now [Optionity Exclusive]

Apple Inc. (AAPL) lost another 3.76% and closed at $509.79 on Friday. The analyst from Jefferies, Peter Misek, cut his first-quarter iPhone sales estimate to 48 million from 52 million and gross margin expectations for AAPL by 2 percentage points to 40 percent. UBS Investment Research also cut its price target on AAPL to $700 from $780 due to lower expected iPhone and iPad shipments for the March quarter. However, the Apple story is not over, as cited by UBS’s Milunovich, “Apple is driven to make beautiful products. Whether it is an iTV, wearable computers, or another new product category, we have faith that innovation is not dead.”

Valuation, Value Trap

AAPL currently has 11.5 P/E, which is under industry average of 13.7 and below AAPL’s 5 year average of 21.9. AAPL is also trading at 8.2 for forward price/earnings, which is lower than the S&P 500 average of 14.2. PEG ratio is at 0.4 as of Dec. 14, 2012. It is hard to argue that AAPL is not under-valued. However, with the slowing growth estimate, 70.83% past 5 year (per annum) vs. 20.67% next 5 year (per annum), there is also concern that AAPL may be a value trap.

Let’s do a quick check-list, as provided by Stockopedia, to find out if AAPL is showing some signs for being a value trap. 

1.Is the sector in long-term secular decline?

The growth may be slowing, but AAPL is expected to generate $221.73B for 2014 as compared to $192.62B for the current year.

2.Is the risk of technological obsolescence high? Is Apple facing technological obsolescence?

The writer had a hard-time to find the supporting evidence to make it a sounding question at the time of writing.

3. Is the company’s business model fundamentally flawed?

No, definitely not for Apple’s business model, which is currently generating $50.86B, ttm, operating cash flow with $31.22B levered free cash flow, ttm.

4. Is there excessive debt on the books?

Apple has no debt and has the total cash of $29.13B in the most recent quarter.

5. Is the accounting flawed or overly aggressive?

Again, the writer had a hard time finding accounting concern on AAPL at the time of writing.

6.Are there excessive earnings-estimate revisions?

No. From the analysts’ perspective, the number of EPS revision is reasonable, as seen from the table below.

Source: Yahoo! Finance

7. Is competition escalating?

This one is tricky. Apple Vs. Samsung or Apple Vs. Google or Apple Vs. Everyone else in the smartphones and tablets. The answer is yes for increasing competition; however, it is a question mark when it comes for the term “escalating”.

According to AAPL’s latest 10-Q report, “The markets for the Company’s products and services are highly competitive and the Company is confronted by aggressive competition in all areas of its business.” Further, “The Company expects competition in these markets to intensify significantly as competitors attempt to imitate some of the features of the Company’s products and applications within their own products or, alternatively, collaborate with each other to offer solutions that are more competitive than those they currently offer.” Lastly, “The Company’s future financial condition and operating results depend on the Company’s ability to continue todevelop and offer new innovative products and services in each of the markets in which it competes. The Company believes it offers superior innovation and integration of the entire solution including the hardware (iPhone, iPad, Mac, and iPod), software (iTunes), online services (iCloud), and distribution of digital content and applications (iTunes Store, App Store, iBookstore and Mac App Store).”

One thing for sure is that AAPL had been operating in a very competitive market and will continue to be in the near and long-term future. To put long-story short, AAPL will continue to innovate and has the sufficient resources to compete.

8. Is the product a consumer fad?

This is a very old topic being debated. The writer has no intention to pursue this question further. This question will be left unanswered and be subjected to readers’ own decision.

9. Are there any worrying corporate governance noises?

No. The writer had a tough time finding on-going corporate governance noises for AAPL.

10. Has the business grown by acquisition?

Below is a list of acquisitions done by AAPL since 2010 (there were more acquisitions from 1988 to 2009). However, AAPL’s sales growth is mainly driven by its innovation and its own i-products, including iPhone and iPad.

Source: Wikipedia
It is unfair to call APPL a value trap at this moment. However, there is a high probably that AAPL may become even more under-valued based on the current technical trend.

Technically, Bearish

AAPL closed at $509.79 with 3.76% loss on Dec. 14, 2012. The volume of 36.06M was 52.6% more than 30 day average volume of 23.63M. AAPL had been trading in the range of $379.57-$705.07 in the past 52 weeks. As seen from the chart below, AAPL is currently trading below its 50-day MA of $584.52 and 200-day MA of $597.61. The MACD (12, 26, 9) had been showing a bearish sign since Dec. 7 and the MACD difference diverged last Friday. The momentum indicator, RSI (14), is showing an increasing selling momentum at 31.59. AAPL had sliced through and closed below its S1 pivot point of $527.27 on Friday. Next supporting level will be $469.25, the S2 pivot point. AAPL is bearish in the short-term, technically.



For AAPL stock holders and for those who would like to set up certain hedging through options, a bear put spread will be reviewed below. Bear put spread could be a cost-effective strategy which provides limited protection.

For every 100 shares of AAPL,

  • Buy 1x Feb.16, 2013 put at the strike price of $500 for the cost of $32.11
  • Sell 1x Feb. 16, 2013 put at the strike price of $450 for the credit of $13.78

The cost to set up the 1x bear put spread is $18.33. This will give a maximum protection of $31.67 ($50 gain – $18.33 cost). A practical explanation of bear put spread can be read here from Investopedia. As of last closing, Feb. 16, 2013 put at the strike price of $500 has an open interest of 11,283 with the implied volatility of 43.9. The chance of breakeven is 35.32. For Feb. 16, 2013 put at the strike price of $450, the open interest is 2,150 with the implied volatility of 45.3. The chance of breakeven is 23.32. The historical volatility for AAPL is 37.45 for the time period of 2 months. Since the implied volatility for the Feb, 2013 put is higher than the historical volatility, bear put spread gives us some edge over simple put hedging strategy. However, hedging with simple put will give the full downside protection (below the strike price).


Apple story is not yet ending, but the volatility will not leave soon. AAPL’s valuation may look attractive, but it makes sense to take some short-term risks away through options hedging due to its current technically bearish trend.


Note: All the prices are quoted from the closing of December 14, 2012 and all calculations are before fees and expenses.  Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.


Long Intel But Protecting With Options [Seeking Alpha]

Intel Corporation (INTC), the largest chipmaker in the world, had been suffering from a dramatic, continuous decline since August 10, 2012 with 27.42% drop (33.34% drop from its 52-week high) after Tuesday’s closing at $19.51. Tuesday’s trading also hit $19.35 new 52-week low. While I was wrong about INTC’ recent stock performance, I intend to stick with INTC for a longer-term as Intel’s core technology strength remains. However, protective options will be setup for INTC stocks to weather through the recent turmoil, including the departure of CEO, Paul Otellini, continued concerns for the mobile market, and the upcoming U.S. Fiscal Cliff.

Read More Here.