This New Technology Continues to Capture Attention
The description is rather technical. The applications might be life changing and could create countless trading opportunities.
The technology is CRISPR (clustered regularly interspaced short palindromic repeats), which is “a family of DNA sequences found within the genomes of prokaryotic organisms such as bacteria and archaea.
These sequences are derived from DNA fragments from viruses that have previously infected the prokaryote and are used to detect and destroy DNA from similar viruses during subsequent infections. Hence these sequences play a key role in the antiviral defense system of prokaryotes.”
Among the trading opportunities, as Business Wire reported is the following news:
Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX) today announced that the company is enhancing its gene editing capabilities to develop novel therapies for Duchenne Muscular Dystrophy (DMD) and Myotonic Dystrophy Type 1 (DM1) by expanding its collaboration with CRISPR Therapeutics and acquiring Exonics Therapeutics.
Vertex and CRISPR Therapeutics (NASDAQ: CRSP) have expanded their collaboration and entered into an exclusive licensing agreement to discover and develop gene editing therapies for the treatment of DMD and DM1.
Vertex and Exonics Therapeutics have entered into a definitive agreement under which Vertex will acquire privately held Exonics, a company focused on creating transformative gene editing therapies to repair mutations that cause DMD and other severe neuromuscular diseases.
“This agreement with Vertex reflects the strong collaboration we have built together in other programs and underscores Vertex’s commitment to gene editing,” said Samarth Kulkarni, Ph.D., Chief Executive Officer of CRISPR Therapeutics. “We continue to make significant advancements in enabling in vivo approaches for gene editing and are excited about the possibility of developing potentially curative therapies for DMD and DM1 together with Vertex.”
“DMD and DM1 are devastating muscle diseases with no curative therapies available,” said Eric Olson, Ph.D., Founder and Chief Science Advisor of Exonics, and Professor and Chair of the Department of Molecular Biology at UT Southwestern Medical Center.
“Vertex has a proven track record of developing important therapies for serious diseases and we are excited to combine our efforts to potentially develop a safe and efficacious one-time treatment for severe neuromuscular diseases.”
“The Duchenne community needs novel approaches to treat and cure this devastating disease and Exonics’ technology has the potential to dramatically improve the lives of Duchenne patients,”
said Debra Miller, CEO and Founder of Cure Duchenne that provided the initial seed funding for Exonics.
“We are delighted that the talented scientists at Vertex and Exonics will work together to advance these promising gene editing treatments for Duchenne and other neuromuscular diseases.”
Under the terms of this strategic collaboration and license agreement, Vertex will pay $175 million upfront for the exclusive worldwide rights to CRISPR Therapeutics’ existing and future intellectual property including foundational CRISPR/Cas9 technology, novel endonucleases, single and double cut guide RNAs, and AAV vectors for DMD and DM1 gene editing products.
For the DMD program, Vertex is responsible for all research, development, manufacturing, and commercialization activities and all related costs.
For the DM1 program, Vertex and CRISPR will share research costs for specified guide RNA research to be conducted by CRISPR, and Vertex is responsible for all other research, development, manufacturing, and commercialization costs.
CRISPR Therapeutics is eligible to receive payments of up to $1 billion inclusive of the upfront and potential future payments based upon the successful achievement of specified research, development, regulatory, and commercial milestones for the DMD and DM1 programs.
In addition, Vertex will pay tiered royalties on future net sales on any products that may result from this collaboration. At IND filing, CRISPR has the option to forego the DM1 milestones and royalties to co-develop and co-commercialize all DM1 products globally.
This all contributes to a potentially bullish outlook for CRSP which appears to be breaking out of a base.
A Trade for Short Term Bulls
As with the ownership of any stock, buying CRSP 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.
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 CRSP
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 CRSP, the July 19 options allow a trader to gain exposure to the stock.
A July 19 $45 call option can be bought for about $2.50 and the July 19 $50 call could be sold for about $1.25. This trade would cost $1.25 to open, or $125 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 $125.
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 CRSP the maximum gain is $3.75 ($50 – $45= $5; $5 – $1.25 = $3.75). This represents $375 per contract since each contract covers 100 shares.
Most brokers will require minimum trading capital equal to the risk on the trade, or $125 to open this trade.
That is a potential gain of about 200% based on the amount risked in the trade. The trade could be closed early if the maximum gain is realized before the options expire.