DNA has been in the news recently. Here's the latest:
"NEW YORK (AP) -- Genentech's board of directors is close to striking a $95-per-share sale to cancer drug partner Roche, according to a report by the Wall Street Journal."
We cashed out the rest of our DNA March 85 calls at $8 for a +191%:
March 09, 2009
11:30 | HappyTrading DNA ($92.50) Sold to Close DWNCQ Mar 85 calls, at $8.00 +191%
Last Friday, we locked in profits on part of our trade:
March 06, 2009
12:43 | HappyTrading DNA ($90.70) Sold to Close DWNCQ Mar 85 calls, at $6.50 +136%
In our Trading Room, I said:
HappyTrading DNA
locked in some profits (partially out) at +136%.
HappyTrading DNA
we'll get the rest out next week. hopefully when DNA make another jump to $92-$93...
DNA did make that second jump today and went all the way up to $93.47 in a hurry, as the news came out about a deal for $95/share being nearly done. It closed at $92.63 today. Those March 85 call options trade as high as $8.63 and closed at $8.3.
We opened this trade on Feb 18, 2009:
February 18, 2009
07:26 | HappyTrading DNA ($84.00) Bought to Open DWNCQ Mar 85 calls, at $2.75
So, what prompted us to make this trade? Let's take a look at things fundamentally, technically, and psychologically. Well, we all know that when Roche first made the offer back in July 2008, DNA jumped all the way to nearly $100! It then came back down as the "merger drama" went on and the market condition deteriorated. DNA shares dropped all the way to $70 before 2008 ended. DNA had an earnings run from December until late January. Then, it flattened out. But, on Feb 18, it jumped on good volume, and, that was our cue:
Techincal Analysis
DNA (3-month daily chart)
1) On 2/18, DNA went up and pushed its daily upper BB higher, signallying more upwards movements
2) also, on the same day, its MACD displayed a new bullish crossover.
Something else bullish showed on the monthly chart:
DNA (2-year monthly)
On the monthly chart, you can see that in February, the monthly MAs started to curve up. Actually, looking at this chart, one would think that if it weren't for the pending merger, DNA would likely continue higher, as the monthly MAs are almost creating a new bullish formation.
Fundamental and Psycological Reasons.
On Feb 25, there was news about Roche doing a record bond sale to fund this merger. DNA jumped as high as $89, but, we didn't sell. This is because $89 was the original bid price from Roche and DNA had gone all the way to $100. The big change on the scene is that the market conditions are not as good. Further, DNA had wanted $112 for this deal. With Roche getting the money ready, there is a high probability that Roche is ready to raise the price. Also, with more reports on DNA's cancer drug, Avastin, coming out in April, Roche needed to do this merger fast. Roche did not raise its offer right away and DNA had to make its case for a higher price to the shareholders, which caused DNA price to drop for a few days. More psychological games being played here. But, as the daily chart showed:
3) The bullish formation in the daily MAs held up and DNA's price stablized around $82.
Since Roche had already raised the money and the present offer expires on March 20, we held the position on those March 85 calls, even though they dropped all the way down to $2. The patience paid off on Friday, and, today was another extra jump (+30% from Friday), more than the icing on the cake!
Good night and HappyTrading! ™
