Wall Street Renegade calls a 33% return for subscribers
By Jay Peroni, CFP and Wall Street Renegade Founder
I love charts! A picture is worth a thousand words, right? Take a look at this chart:
On August 22nd, the Wall St Renegade System put NPS Pharmaceuticals (Ticker NPSP) on our radar list as it was showing unusual option activity. Though the stock was trading around $7.75 a share on this day, speculators were buying the Sept and October $9 calls.
Sometimes investors will purchase a call contract rather than buying the underlying stock. It can be a cheaper way to speculate as each call contract controls 100 shares of stock and it typically requires less capital up front. A “call” contract gives the owner the right but not the obligation to buy the stock at the strike price up until the expiration date. So in other words, investors were paying a big premium to lock in NPS Pharmaceutical stock at $9 even though the stock was selling for $1.25 per share less. This caught my attention. Why were investors speculating?
As I poured through the news, I saw this tad bit of info:
“NPS is advancing two late-stage registration programs. A New Drug Application is undergoing FDA review for Gattex (teduglutide) as a treatment for adult short bowel syndrome (SBS) and a Phase 3 registration study has been completed for Natpara (recombinant human parathyroid hormone (rhPTH [1-84]) in adult hypoparathyroidism.”
So I determined it had a couple of drugs up for FDA approval. I LOVE these types of companies… Investors bid up the price of a stock in anticipation that the company gets the FDA’s stamp of approval. I have done quite well with these kinds of trades so again this made it to my short list of stocks to consider. After digging around a bit more, checking the company’s fundamentals, looking at its stock chart, I saw a good entry point at $7.82 per share. So on August 22nd, I issued a BUY alert to buy NPSP up to $9 a share (where the option activity was taking place). It took about 30 days for the stock to hit my maximum entry price of $9. This gave us a 15% gain in less than 30 days.
On October 5th in my weekly update to subscribers, I wrote the following about NPSP:
“NPSP had a decent week last week increasing another 2%. This is still above our $9 entry price. The option activity is still strong for the Nov $10 calls. We could get another 10-20% of upside…”
I saw more potential as investors kept flocking to higher priced call options on NPS Pharmaceuticals. Then on October 12th the stock made a HUGE move advancing 19% in one day closing the day at $10.86. My original target for the stock was $11.50 but with a 36% gain in less than 60 days I didn’t want to get too greedy.
Today (Oct 15th), I watched NPSP on the open to see if we could get a little more strength going into the trading session. However, there was quite a bit of profit taking. The stock started trending down as it moved toward $10 a share. As the stock started to gain a little more momentum, I knew the risk to reward was no longer in my favor. The stock COULD hit my target price or could drop like a rock if they don’t get FDA approval or any negative news came in.
I always ask myself, “Will I regret missing some of the upside or will I be more upset if I stay in and the stock gets crushed?” I checked our Renegade reading and the option activity was mixed… No clear signal on whether this stock has more in the tank or at the end of the rope. So I had to make a judgment call on this one. Take my 17 years of trading experience and go with my gut. Here is what I came up with:
“I was hoping we would get a little more bounce from NPSP this am. The stock is seeing some downward pressure and I don’t like the risk/reward at this point. I am going to be selling 100% of NPSP. We are up over 30% right now and I feel comfortable with this gain. YES, we could make much more if tomorrow’s ruling is favorable, but this is not a given.
The option activity right now is showing a mixed result. We have some speculating on the downside of the stock and some on the upside. There is no clear winner in the activity at this point and I don’t want to get too greedy hanging on to try to sell at $11. I would rather book the 30% profit today and leave some potential gains on the table. I think the market has factored in a FDA approval and if any negative info comes out tomorrow there could be plenty of downside.”
We sold at $10.42 making a 33% gain in less than 60 days! NPSP could have a big day tomorrow, but I will sleep much better locking in the gain now then potentially losing if the stock hits a bump in the road tomorrow. If the stock surges tomorrow, there’s no second-guessing “what if…” because I feel comfortable with what we made in such a short time frame!
Some weeks have been incredible where we make double-digit returns like 2 weeks ago where we were up 13% for the week! You have to be prepared for winners and losers. The system isn’t perfect, but it is unlike anything I have ever seen in my 17+ years of trading. We will have some great weeks in the days and weeks ahead as long as we stay focused and disciplined in how we approach our trades.
DISCLAIMER: The above trading ideas are from my own personal stock list and are for educational and informational purposes only. They are NOT specific buy recommendations. Trading stocks is risky and you could lose all of your money. Trade at your own risk. You should always consult a trusted financial services professional before making any financial or investment decisions. Past results are not implied or guaranteed.