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Diabetes Could Push This Stock Higher

Diabetes Could Push This Stock Higher

Millions of people around the world live with diabetes. Regardless of the type of diabetes, diabetes isn’t yet a curable disease. However, it is a very treatable disease, and no matter how frightening, annoying, and frustrating it can be, people with diabetes can live long, healthy, and happy lives.

Companies involved in treating the disease include Insulet Corporation (Nasdaq: PODD), a company that makes tubeless insulin pump technology with its Omnipod Insulin Management System (Omnipod System).

PODD recently announced financial results for the three months ended March 31, 2019 — earnings per share (EPS) of 7 cents in first-quarter 2019 compared to a net loss of 11 cents posted in the prior-year quarter.

Revenues in the first quarter totaled $159.6 million as the top line improved 29% from the year-ago quarter’s reported figure.

Insulet reported first-quarter 2019 U.S. Omnipod revenues of $86.1 million, reflecting an increase of 23% year over year.

Business Wire provided more details.

“Building on our outstanding performance in 2018, Insulet delivered strong financial results for the first quarter, including robust revenue growth, margin expansion and continued profitability,” said Shacey Petrovic, President and Chief Executive Officer.

“We are making great progress on many fronts, including the start-up of our highly-automated U.S. manufacturing, our Omnipod DASH full U.S. market release, and the corresponding shift to the pay-as-you-go model. We are particularly proud to have advanced all of these initiatives while driving first quarter revenue growth of 29%.”

For the year ending December 31, 2019, the Company is raising its revenue guidance to a range of $667 to $690 million, compared to 2018 revenue of $563.8 million, representing growth of 18% to 22%. This compares to previous expectations of $662 to $687 million, and growth of 17% to 22%.

Traders seemed pleased with the news and pushed the stock up slightly, potentially reversing a short term down trend.

PODD daily chart

The longer-term chart using weekly data shows that the recent decline could be a retracement that followed an extended advance. The chart shows the retracement was relatively mild and the stock could be set to challenge the recent highs.

PODD weekly chart

A Trade for Short Term Bulls

As with the ownership of any stock, buying PODD could require a significant amount of capital and exposes the investor to standard risks of owning a stock.

To reduce the risks of a trade, an investor could purchase a call option. This allows them to benefit from upside moves in the stock while limiting risk to the amount paid for the options. However, buying a call option can also require a significant amount of capital and includes the risk of a 100% loss.

Whenever an option is bought, the maximum risk is always equal to 100% of the amount of spent to purchase the option. Since options cost significantly less than a stock, the risk in dollar terms will usually be relatively small to own an option.

To further limit the risks of the trade, an investor could use a bull call spread. This strategy consists of buying one call option and selling another at a higher strike price to help pay for the cost of buying the first call. The spread strategy always reduces the risk of an options trade.

This strategy is designed to profit from a gain in the underlying stock’s price but has the benefit of avoiding the large up-front capital outlay and downside risk of outright stock ownership. The potential risks and rewards of this strategy are summarized in the chart below.

bull call spread

Source: The Options Industry Council

Both the potential profit and loss for the bull call spread are limited. The maximum loss is equal to the net premium paid when the trade is opened. The maximum profit is limited to the difference between the strike prices, less the debit paid to put on the position.

This strategy could be especially appealing with high priced stocks where the share price and options premiums are often a significant commitment of capital for smaller investors.

A Specific Trade for PODD

Every day, we scan the markets looking for trades with low risk and high potential rewards. These trades are available almost every day and we share them with you as we find them. Now, it’s important to remember these are trading opportunities in volatile stocks.

When we find a potential opportunity, we evaluate it with real market data. But because the trades are volatile, the opportunities may differ by the time you read this. To help you evaluate the current opportunity, we show our math and explain the strategy.

For PODD, the June 21 options allow a trader to gain exposure to the stock.

A June 21 $95 call option can be bought for about $4.60 and the June 21 $100 call could be sold for about $2.62. This trade would cost $1.98 to open, or $198 since each contract covers 100 shares of stock.

The amount paid to enter the trade is the largest possible loss on the trade. This is generally true whenever a trader is creating a debit to enter an options trade. “Creating a debit” means there is a cost to enter the trade. You could create a debit by simply buying puts or calls to open a directional trade.

In this trade, the maximum loss would be equal to the amount spent to open the trade, or $198

The maximum gain on the trade is equal to the difference in exercise prices less the amount of the premium paid to open the trade.

For this trade in PODD the maximum gain is $3.02 ($100 – $95 = $5; $5 – $1.98 = $3.02). This represents $302 per contract since each contract covers 100 shares.

Most brokers will require minimum trading capital equal to the risk on the trade, or $198 to open this trade.

That is a potential gain of about 52% based on the amount risked in the trade. The trade could be closed early if the maximum gain is realized before the options expire.