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Sell Express Scripts (ESRX) short

I have exited ADM.

music selection:  “Tumbling Dice” — The Rolling Stones

weigh-in:  208.2 (1.6)

First up is house cleaning.  I exited my trade in Archer-Daniels-Midland (ADM) with a 352 dollar loss, net of all options premiums collected.  The covered call at 40 resulted in shares being called away at a 1,000 dollar loss but premiums to date collected make up the difference.  The loss is 3.91% or 0.64% annualized.  I’m glad to have some portfolio deadweight gone.

Express Scripts (ESRX) strikes me as a dog.  At first blush it appears to be a great business trading at a fair price.  But if you dig deeper you see it is troubled.  The main customer (Anthem) makes up about 30% of revenue and is very upset with them.  They are leaving after their contract ends in a couple years to take the services provided by ESRX in house.  But they are also suing ESRX for over a billion dollars for abusive pricing.  The company recently settled with the department of justice to make some troubling accusations about conflict of interest go away.  And other healthcare companies are making moves to do away with their pharmacy benefit managers and insource the process.  Finally, there are upstarts who provide the service ESRX offers on a fee only basis that looks to undercut the traditional industry model.  I expect the stock to fall.

I sold short 100 shares at 75.68 this morning.  Options premiums are also fat so I taking a new approach and writing a covered put on the position as well to earn premium.  This is the exact opposite of a covered call strategy.  I sold ESRX180216P00072500 for 1.40 a share.  The play will be in place for 40 days and yields an expected 18.25% annually while enjoying 6.12% downside protection.  The is room for an additional 2.50 in short term capital gains if the price falls in the optioned period.

Devour your prey raptors!

{ 6 comments… add one }
  • Chris B January 9, 2018, 8:45 pm

    Interesting. If this position moves against you (stock rises) you could roll the short put to higher and higher strikes, taking a fat credit with each roll to reduce or eliminate the loss while improving your chances of catching a favorable zig zag.

    Let’s just hope ESRX doesn’t announce some initiative related to blockchain / cryptocurrencies, lol.

    And I still think you need to track historical performance by strategy (shorts, UVXY, long stock picks, fixed…). Not to chase past performance of course, but to understamd the costs/benefits of your particular style of diversification.


  • Chris B January 9, 2018, 9:49 pm

    Speaking of crypto announcements, here’s your next short idea. I like the bear call spread and might check pricing in the a.m.


    • The Lizard King January 9, 2018, 10:08 pm

      Amazing. Top is in for crypto?

      • Chris B January 10, 2018, 6:23 pm

        I’ll refrain, as I’ve made many premature “peak stupid” calls in the past couple of years. I’m simply out of credibility when it comes to saying things can’t get any more ridiculous.

        KODK put prices are now astronomical, and calls are lagging them. Makes me wonder if some version of an arbitrage strategy like The Box could be applied for all-weather profits.


        The number of strikes was expanded today. The July 10/12.5 bear put spread (approximately ATM at price =$12) could probably be had for about $1.80. The same 2.50 wide 10/12.5 bear call spread could be had for about $0.80. This might be the best short on cryptomania I’ve seen: 300% returns in 191 days if the bubble pops during that time.

        But again, I’m all out of peak stupidity predictions.

        • Chris B January 10, 2018, 7:06 pm

          /\ oops, I obviously got turned around. Hard to visualize spreads on a cell phone. Apparently I’m peak stupid too, lol.

          • The Lizard King January 11, 2018, 4:32 am

            haha. The markets are “largely” efficient but not perfectly. Tread carefully.

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