Quidel Corporation (QDEL) has potential be one of the heroes of the 2020 pandemic. Correspondingly, the “developer, manufacturer, and marketer of rapid diagnostic solutions at the professional point-of-care of infections diseases and reproductive health,” per the Motley Fool, has more than doubled its market value since January began. Much of this market enthusiasm may be irrational exuberance for the company’s potential market, or each of us may be testing and tracing on a monthly basis for the next few years. Bottom line, QDEL has been remarkably volatile in 2020. For just one unfortunate moment, I failed to adjust my trading strategy.
QDEL performance over the last 12 months, via the Motley Fool.
Selling put contracts is colloquially referred to as picking up nickels in front of steam rollers. You can make a steady living selling put contracts, but it’s risky and the risk can be so severe premiums earned are often not worth the risk.
Below I’ve included a list of my trades in QDEL put contracts. By May 12, 2020 I have made almost $1200 trading QDEL contracts, but, as you can see on the above chart, QDEL had just leaped about $60 from $140 to $200 or about 40% in just a few days. I happily closed my June contract with a strike at $115 for a mere $0.05 per share, but, in my enthusiasm, I turned around and sold another June put with a strike at $170. Sure, $170 was a 14% discount to the market price, $197.82, but almost 50% above the strike I had just closed. Did I really want to buy QDEL at $170?
Almost immediately after my $170 strike transaction closed, I realized my mistake, but so did the market. To compound my error, I held the position for two weeks, even after I opened a more appropriate short position in a June QDEL put with a strike at $145 on May 20th. With $31,500 tied up in the two QDEL short put contracts I was over extended. QDEL was effectively 5.5% of my portfolio when 3% was a more reasonable target.
Yesterday, after QDEL had fallen below my $170 earlier in the week, I decided to address the holdings before they became even more untenable. To close the $170 strike contract I was required to buy it at $21.88 a share. Then I sold another put contract ($145 strike, July expiration) for $12.35 per share. With $29,000 still committed to QDEL, I plan to close the June expiration as soon it is profitable. Let’s root for a rally!
QDEL Transactions through 5/28/2020
If I can get out of the June $145 contract, relatively unscathed, I may be able to salvage this situation. Perhaps I am fortunate to have a cash account. With a margin account, I would be able to enter many, many more positions like this one which may lead to similar errors due to the complication of managing more trades and positions. Paying $2,188 to get out of that position hurt. It still hurts.