I'm Betting on This Biotech Stock as I Navigate an Overly Complacent Market

Let's review the past few days, the market's complacency and a biotech move I just made.

First, Friday was a triple-witching day, which saw options expire. That meant some additional funds were made available within my portfolio, as some of my covered-call holdings expired in the money. I also had some short Treasury bills that were redeemed. This means I needed to deploy money into a market I consider not only overbought for the most part, but one that reeks of investor complacency.

We now have had more days in a row without a two-percent daily correction in the S&P 500 than at any time since before the Great Financial Crisis more than 15 years ago. We also recently had a AAA-rate tranche of some commercial mortgage-backed securities take a 25% haircut on an office building in Manhattan, something that also hasn’t occurred since the financial crisis.

The market continues to just hit one high after another, even as the S&P 500 has seen year-over-year profit declines in each of the past two quarters, stripping out the contributions of the seven largest tech stocks in the index. 

But while the music is still playing, an investor still has to put money to work, right? Some of my new funds will go right back in short-term Treasuries, as they continue to yield just over 5.3%. This is a solid risk-free return after inflation.

The rest will go incrementally over the next week or two into new covered call positions. As I highlighted with my weekend trade idea, I recently added some exposure to energy via some new covered call positions in the Energy Select Sector SPDR Fund exchange-traded fund XLE. The energy sector has been a serious laggard in the second quarter, but the price of oil is starting to rise again, partly as a result of increasing geopolitical tensions. The ETF provides a diversified way to play the snapback in energy prices and it also yields a bit over 3.2%.

I also opened a new covered call holding in biopharma company Avadel Pharmaceuticals AVDL last week. The company is looking increasingly likely to win its patent litigation efforts against Jazz Pharmaceuticals JAZZ. This will open the way for its narcolepsy product Lumryz to garner considerable market share in a large market, given its lower dosage needs. This should pave the way for the company to be profitable in fiscal 2025. The stock has picked up some increasingly positive analyst support of late. I could also see, once patent litigation challenges are behind it, that Avadel could make a strategic and bite sized acquisition for a larger drug company.

At the time of publication, Jensen was long AVDL, JAZZ, XLE