A covered call order is a strategy where an investor purchases an equity and at the same time sells just out of the money call strikes against the new position. This strategy is cheap for investors since the fees for option orders have declined a lot at the majority of brokerages, according to Jensen.
“This strategy provides significant downside protection to most holdings within my portfolio,” Jensen wrote recently on Real Money. “While it also caps my upside in these positions, it is a trade I am happily willing to make given my currently cautious view on the overall market.”
While the stock of Agenus has remained mostly range bound during the past five years, it has emerged as a “wonderful covered call candidate over that time for me, with approximately a dozen profitable trades using this strategy within my portfolio,” he wrote.
The pharmaceutical company has a $1.3 billion market capitalization and several drugs on its pipeline. Agenus also generates revenue for royalties from sales of the malaria and shingles vaccines from GlaxoSmithKline GSK that uses an adjuvant developed by Agenus.
Agenus deploys a technology to design and control the properties of its antibody candidates.
“The technology would seem to have considerable merit given the company is partnered with many deeper-pocketed names in collaboration agreements to develop a good portion of its pipeline,” Jensen wrote. “ These include Incyte INCY, Merck MRK and Bristol-Myers Squibb BMY.”
A deal that was signed in May with Bristol-Myers includes an upfront payment of $200 million as well as $1.3 billion in potential developmental and regulatory milestones and royalties. Agenus also has a cervical cancer drug that could be approved as soon as December by the FDA.
Agenus boasts liquid options that are “lucrative and are easy to ‘roll’ if you get near the option expiration date with the stock still trading under the call strike,” he wrote. “This allows one to pick up another option premium while continuing to have downside protection in place.”