I'm Looking for Big Returns From This Very Low-Priced Biotech Name
Here's how I'm lining up a potentially lucrative trade on an oncology-focused stock trading below $10.
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Today's trade idea revolves around covered calls in an oncology-focused, small-cap biotech concern. The stock currently changes hands at $4.50 a share and the company sports an approximate market capitalization of $300 million.
Liquidity in the options against the equity is decent but not great. However, all of my covered call orders on this name have been executed the same day and usually quite quickly. Liquidity does seem to improve as the day goes on, so the second half of the trading day is the optimal time to execute covered call orders on this trade.
That said, option premiums are quite lucrative and recent trial results from the company have boosted enthusiasm on the stock and de-risked its developmental path somewhat. The name in question is Cardiff Oncology CRDF.
The San Diego-based company's key — and really only — asset in development at this time is called onvansertib, which was developed using Cardiff’s expertise in Polo-like kinase 1 (PLK1) inhibition. Onvansertib is an oral PLK1 inhibitor with a 24-hour half-life that is currently undergoing evaluation in multiple cancer indications both as a monotherapy and as a component of combination therapies.
The most promising and advanced indication that onvansertib is being evaluated against is first-line (1L) RAS-mutated metastatic colorectal cancer (mCRC). Late last year, mid-stage study data came out that significantly boosted the prospects for Cardiff.
As part of a combination therapy with both Roche’s recombinant humanized monoclonal IgG1 antibody known by the brand name Avastin and the chemotherapy regimen Folfiri, the initial results of this study were quite impressive. The 30 mg dose of onvansertib being evaluated in this combination therapy produced a 64% overall response rate, or ORR, against just 33% from the current standard of care. The 20 mg delivered a 50% response rate. More data from this study should be disclosed before the close of the first half of this year.
Approximately 50,000 Americans are afflicted by 1L RAS-mutated mCRC. Onvansertib has the potential to be the first PLK1 inhibitor approved for this indication. Cyclacel’s CYCC is the only other PLK1 inhibitor in the clinic, but that concern’s entry only has a half-life of 12 hours. Onvansertib is also in Phase 2 testing as monotherapy to treat relapsed small-cell lung cancer and as part of a combination therapy with paclitaxel to treat triple-negative breast cancer.
Cardiff smartly used the rally in its stock following this news to raise $40 million of additional capital via a direct offering. The data triggered several buy reiterations from analyst firms as well, where the median price target on CRDF currently hovers at $10.
With the recent capital raise, Cardiff has funding in place to support all planned activities well into 2026. Given its small market cap, additional positive trial data would make Cardiff a logical and bite-sized acquisition target as well. Pfizer PFE would be one name I would list as a potential acquirer, given it is running one of the Cardiff’s current studies and has been active in expanding its oncology footprint.
Option Strategy
This is how one can initiate a holding in CRDF with a covered call order. As a reminder, covered call orders involve buying an equity and simultaneously selling just out of the money call strikes against the new position.
Using the May $4 call strikes, fashion a covered call order with a net debit in the $3.10 to $3.30 a share range (net stock price - option premium).
This strategy provides downside protection of nearly 30% with 25% upside potential of 25% even if this equity falls 10% over the 3 1/2-month option duration.
At the time of publication, Jensen was long CRDF and PFE.
