Mid-Cap Biopharma Stock Offers Intriguing Options Trade Amid Market Selloff
With the recent decline, the shares appear at least reasonably valued, and I can make them cheaper and more attractive with the following covered call trade.
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It was a very good week to have plenty of “dry powder” within my portfolio.
The midterm landslide resulted in the biggest rally in the markets since the rebound from the tariff tantrum in April 2025 on Wednesday on hopes that gridlock in D.C. would be good for the equity markets. On Thursday, investors, reconsidered that thesis and found it to be wanting. Worries on how the election outcome could impact the AI infrastructure buildout in 2027 took hold. The VIX, or “fear index,” spiked on Thursday and rose 70%. The NASDAQ dropped by over 5.5% on the day and entered official correction territory. The tech-heavy index clawed back a small part of those losses on Friday.
During Thursday’s big selloff I put some of my cash to work executing some covered call orders while the markets panicked. I added a new mid-cap biopharma to my portfolio late in the week. It will be this weekend’s covered call trade idea. The name of the company is Axsome Therapeutics (AXSM). The stock has dropped nearly by half since its June highs. Of course, the shares had tripled during the preceding year and a half.
The main drivers of the recent decline in the shares have been perceived competitive threats and current unprofitability. In addition, a tepid launch into an Alzheimer’s agitation indication that triggered some questions around Axsome management’s projection of Auvelity’s $8 billion plus peak sales potential. Of note, the stock currently trades just over $130.00 a share and sports an approximate $7 billion market capitalization.
Axsome is focused on the development and commercialization of therapeutics targeting the central nervous system (CNS). The company has three FDA-approved products on the market, the most important of which is Auvelity. This is a twice-daily oral, N-methyl-D-aspartate (NMDA) receptor antagonist that garnered a green light to treat major depressive disorder or MDD in 2022 and agitation associated with dementia due to Alzheimer’s disease in April of this year.
Earlier this month, third quarter results showed sales grew 52% on a year-over-year basis to just under $260 million. Roughly 80% of overall revenues came from Auvelity. The company is advancing a diverse pipeline as well. This consists of six later-stage clinical programs pursuing nine indications. The company’s narcolepsy prospect AXS-12 should be approved in the spring of next year and its pipeline has five Phase 3 trial readouts in 2027 calendared.
As mentioned before, Axsome is currently in the red but that will change soon. The current analyst firm consensus has sales growing roughly 50% this year to just north of $950 million and projects Axsome will lose just over $2.50 a share in FY2026. In FY2027, the analyst community estimates just over $4 a share in profits and nearly $1.5 billion in revenues. They project over $23.00 a share in earnings on $3.5 billion in FY2030 — a true GARP trajectory. With the recent decline, the shares appear at least reasonably valued, and I can make them cheaper and more attractive with the following covered call trade.
Option Strategy
This is how one can initiate a holding in AXSM with a covered call order. As a reminder, covered call orders involve buying an equity and simultaneously selling just out of the money call strikes against the new position.
Using the May $120 call strikes, fashion a covered call order with a net debit in the $104.00 to $105.00 a share range (net stock price – option premium).
This strategy provides downside protection of 19% with upside potential of 15% even if the stock falls just under 10% from here over the option duration.
At the time of publication, Jensen was long AXSM.
