Play LEAPS options for growth and income

Gene editing is making headlines in the medical industry with the first FDA approval of a CRISPR/cas9 treatment for sickle cell disease SCD and TDT by CRISPR Therapeutics AG NASDAQ: CRSP and partner Vertex Pharmaceuticals Inc. NASDAQ: VRTX. CASGEVY made headlines around the world when it received FDA approval on December 8, 2023. However, on the same day, the FDA also approved LYFGENIA (lovotibeglogene autotemcel), which is another gene therapy treatment for SCD from biography of the bluebird NASDAQ: BLUE. At the same time, CRISPR Therapeutics is getting most of the attention, while Little Bluebird Bio benefits from the secular tailwinds forming with gene therapy. bluebird has 3 FDA-approved gene therapies:

LYFGENIA (lovotibeglogene autotemcel) was approved by the FDA on the same day as the gene-editing therapy CASGEVY on December 8, 2023, for the treatment of sickle cell disease (SCD). LYFGENIA is the longest-approved gene therapy studied for SCD. It is designed to allow the production of anti-sickling hemoglobin to decrease vaso-occlusive events.

ZYNTEGLO (betibeglogene autotemcel) is a gene therapy treatment for beta-thalassemia characterized by inefficient production of healthy red blood cells. Patients receive functional copies of the beta-globin gene. Studies have shown that 89% of patients achieved transfusion independence.

SKYSONA (elivaldogene autotemcel) is a gene therapy treatment for early active cerebral adrenoleukodystrophy (CALD). It is the first and only gene therapy shown to slow the progression of neurological dysfunction in boys with early, active CALD.

How to play BLUE with LEAPS options for growth and income

BLUE is attractive to speculators because it is frankly a cheap stock. Much cheaper than CRSP, with large relative upside potential. We can look to take advantage of stock options using Long-Term Advance Equity Securities (LEAPS) or LEAP calls, which are relatively cheap. Basically, BLUE is a solid speculation that will benefit from continued news about gene therapies, including gene editing. It is also the rare company with 3 FDA approvals for gene therapies. It’s LYSENIA, a $3.3 million treatment, but it’s making progress with reimbursement from insurers, especially as CASGEVY is making traction on it.

BLUE cup weekly breakout in the gap zone

Since we are looking at LEAPS, we will use a larger weekly time frame to see the big picture of the price landscape for our technical analysis. Hard to believe, but BLUE was trading as high as $152.88 in March 2018. BLUE fell to a low of 87 cents in February 2023, forming a rounded bottom. The weekly market structure low (MSL) buy triggers above $1.47. The daily MSL shot above $1.13. The weekly lip line of the cup was formed in January 2024 at $1.53, becoming the ley line in the sand resistance, re-entry into the gap zone and the breakout level. The weekly relative strength index (RSI) is rising through the 40 band. Pullback support levels at $1.40, $1.26, $1.13 and 97 cents.

Long BLUE $2 LEAPS calls

Since we are giving BLUE time to break out and accelerate higher, we take the BLUE $2 LEAPS expiring January 17, 2025, or in 326 days for 60 cents. This is an out-of-the-money (OTM) directional options trade. Analyzing the option Greeks tells us that the Delta 64.5 implies that the call options will earn 64.5 cents for every $1 move in the underlying stock.

Theta implies that the option will lose 0.0011 cents in value per day from time decay to expiration. The option’s breakeven cost is $2.55 at expiration. If BLUE rises early, Delta will rise at the rate of Gamma and the option will be worth more. $2.26 is the gap fill level, with the next gap fill at $3.94, and a high of $5.53 was reached as of the FDA approval date of December 8, 2023. This would be the upward target.

Sell ​​OTM calls for income.

If BLUE breaks above $2.00 and gets in the money (ITM), we can start generating income using the LCDDS (long call diagonal debit spread) strategy. Since we already own the LEAPS call option, we can sell OTM calls against the long LEAPS call position.

Even without switching to ITM, you can sell BLUE $2 Calls expiring April 19, 2024 in 53 days for 15 cents per contract. The $2 LEAPS cost us 60 cents. The 15 cent premium represents a 25% return for holding LEAP calls for 53 days. If BLUE reaches $2.00, our LEAPS calls would also increase in value, with the possibility of being assigned.

If you don’t want to risk the assignment, you can sell deeper OTM calls, such as the $2.50 April calls, which will provide lower rewards. As BLUE stock rises, you can select higher strike prices. The premiums also buffer any downward movements.

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