The market is looking really shaky right now after the recent Fed statement. The breadth has been terrible, and there is a real chance Santa might not show up this year. I discussed the reasons why I was focusing on protecting my portfolio first and foremost a couple of weeks back here.

Despite reducing the size and number of positions in my portfolio, there are still some great trading setups forming every day. 

A great one this week was ANET which worked perfectly this week and is summarized here.

A new trade I entered yesterday and is looking like it could go on a nice run is Moderna Inc (MRNA).

There are a lot of reasons for Moderna Inc (MRNA) to be a stock I want to trade no matter what the Fed is doing.  

Why?

Because if the bulls are going to look for a place to flock into when the market is falling, pharma companies tied to the new variant might be one place they turn to.

Here is where I entered the trade a couple of days ago

Moderna, Inc., (MRNA) a biotechnology company, develops therapeutics and vaccines based on messenger RNA for the treatment of infectious diseases.  Their COVID-19 vaccine is being used by hundreds of millions of people around the world for protection against the virus.

Technicals

MRNA has retraced approximately 40% off the highs made in August. It found support around the $220 area and made a higher low last week at $233.51. You can see this in the daily chart below.

The Trade

Since the higher low last week, MRNA has been in an uptrend. I bought the pullback into the 13 period moving average on the hourly chart, which you can see below.

I bought the $270 calls expiring Dec 31st, for $20 when the stock was trading around $275.

My original plan was to place my stops below the pivot low under $250, and I have a target in the $300-$350 price range for my exits. There is a gap to fill at 306.72 and another one at $352.43. $300 and $350 are psychological targets.

Given that the trade is working so well so early, it is now trading at around $286 as I write this. I’ve decided that rather than put in a sell order for my $270 calls, I will put a sell order in for the $300 calls at $12 and create a call spread.

What this allows me to do is reduce my risk. By doing this, I give up some potential reward but put myself in a position of strength. I paid $20 for the $270 calls and received $12 in premium for the $300 calls. This makes my breakeven price at $278 ($20-$12 = $8 +$270 – $278). It also reduces my risk from $20 to $8 if the trade were to go completely against me.

If MRNA continues higher, my reward potential is capped by the $312 stock price. By selling the $300 calls for $12, I give up any potential above $312. By doing this I have used options to restructure the risk/reward of my trade. 

MRNA is looking good right now, so hopefully, I can get that move above $300 next week!

Bottom Line

When there are market selloffs, big money usually rotates out of one sector and parks its cash in another sector. Given the spread of the Omnicron COVID-19 variant, I believe the sector that could outperform is biotechs with COVID-19 vaccines. 

Whilst I’m bearish the market overall and am focusing on protecting my portfolio right now, there was a great trading setup in MRNA a couple of days back, and I got long the $270 calls expiring Dec 31. Given the increase in price since then, today, I sold the $300 calls to create a call spread. 

This is an example of using options to alter the Risk/Reward profile of a trade. I’m swinging this trade into next week and looking for MRNA to get above $300.