Gossamer Bio (GOSS)

When you’re talking biopharma, your stock’s destiny is entirely left up to the passage or failure of drug trials combined with stock market price movement. Given Gossamer Bio (GOSS) has had no real news in recent weeks, the Bears pushed the stock -8.07% lower this week, earning it the spot of Biggest Weekly Loser.

 Spy 2/3 Vertical Put Spread: Naked-to-Vertical

As the S&P 500 continues to climb seemingly inexhaustibly rise higher and volatility approaching shocking lows, I became less and less confident that my SPY 1/31 312 naked puts would ever become profitable. As of Thursday’s SPY pricing, the market would need to sell off -4.30% before I broke even.

So, when the market had a slight pullback, I decided to limit my greed and increase the probability of my trade by converting my naked puts back to vertical put spreads in order to (1) reduce costs, (2) raise my strike price to a much more probable level, and (3) extend my expiration date into February.

I sold my SPY 1/31 312 puts for $0.78 each and bought SPY 2/3 325 Puts for $3.00 a piece. In order to reduce the cost of the trade, I sold the SPY 2/3 317 Puts for $1.35, capping my gains to a -3% market selloff (a more realistic target).

At the time, the SPY was trading for about $326, meaning I would only need it to sell off by $1.00 or 0.31% before the higher strike would be profitable. Granted, I’ll need it to sell off far more to make the entire trade profitable (see below).

How does this math affect the entire cost of the trade?

Sell SPY 1/31 312 Puts: +$0.78
Buy SPY 2/3 325 Puts: -$3.00
Sell SPY 2/3 317 Puts: +$1.35

Total Additional Cost of the Trade: $0.87

Cost of Naked Puts Before Conversion: $2.67
New Cost of the Trade: $3.54 ($2.67 + $0.87)

What are the trade’s new break-even and profit targets?

BREAK-EVEN: With the new vertical put spread, I need the SPY to selloff to my strike price plus the cost of the trade or $321.46 (a selloff of -1.4% from the price of SPY at the time of conversion).

My Puts’ Strike Price: $325
Cost of the Put Spread: – $3.54
Break-Even Price: $321.46

PROFIT MAXIMUM: The puts I sold have a 317 strike price which means I make a profit anywhere below my break-even price of $321.46 down to $317. The maximum profit of my trade is $4.46 per spread or a gain of +125.99%.

Break-Even: $321.46
Puts Sold: $317.00
Maximum Profit: $4.46

Total profit possibility: $4.46 / $3.54 (cost of the trade) = 1.25988 or 125.99%

Current Status

Cost of each Spread : $3.54
Current Value of each Spread at Friday’s Close: $1.64
Profit/Loss: -53.70% 

Yeti (YETI): Added to Position

Yeti (YETI) reacted dramatically relative to the rest of the market on Monday, dropping more than -5%, and triggering a trailing-stop buy order I had in place which filled at $31.90.

The order replaced shares I sold on December 5, 2019 at $34.01, capturing 6.2% in gains, and raising my per-share cost to $15.10 from $9.50.

My next buy target is around $28.73, nearly -10% lower from Monday’s fill. My next sell target is $37.90, near Yeti’s all-time high of $38.11.

YETI closed the week at $31.31, down -1.85% from where I added on Monday.