2 Biotechs Taught Me: With Covered-Calls, You Win Some, You Limit Some
Let's look at the trade-offs of employing covered-call positions in the biotech space.
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My regular readers here on TheStreet Pro, know I generously employ covered-call orders to initiate and build positions in the biotech and biopharma sectors. I do this for many reasons. First, these sectors have vastly underperformed the overall market for many, many years. It has been the only way to make consistent and acceptable returns from these types of equities. Second, given the higher beta nature of this part of the market, option premiums tend to be quite lucrative.
That said, consistently deploying this strategy means accepting trade offs. There are few investing feelings that are worse than having one of your biotech holdings soaring on a positive trial result or being purchased with a big buyout premium and knowing you have significantly limited your upside. At the same time, when one of your holdings takes a bit of a hit on a setback, you are quite happy it is held via covered-call positions.
I felt both of these emotions this week. UniQure N.V. (QURE) soared some 250%; the trigger for this massive rally was its gene therapy candidate AMT-130, which met all of the main goals of a pivotal advanced clinical trial evaluating it to treat Huntington’s disease. This clears the way for potential approval in 2026. I will take solace in the fact I have maintained a holding in this name since 2022 and have rolled over my position a half dozen times in that time. That said, I still ended up leaving money on the table.
On the flip side, Acadia Pharmaceuticals Inc. (ACAD) is down some 13% for the week. The biopharma company announced Wednesday that its candidate targeting Prader-Willi syndrome, a genetic disorder linked to obesity, failed to meet its study’s primary endpoint in a Phase 3 trial. The decline, however, has affected the value of my covered-call holdings very little.
In fact, some of my large, covered-call holdings have started to expire in the money in recent months, and the stock is still up some 15% in 2025. The decline gives me an opportunity to start to build up that position once again via covered call orders. Acadia is still seeing solid growth from its two products on the market, Nuplazid and Daybue.
In addition, despite the disappointing trial news for its Prader-Willi candidate, Acadia has several other candidates in early and mid-stage development. The company is already profitable and should see impressive earnings growth in the coming years on revenue growth in low teens. It also ended its most recent quarter with just over $500 million of cash and marketable securities on its balance sheet. I am happy to have the lower entry point to start to boost my position in this mid-cap biopharma name.
This week proves: The trade-off of covered-calls can be worth it.
At the time of publication, Jensen was long ACAD and QURE
