The Pharma Panic That Didn't Happen Yesterday

Bear Market Rally Breaks out

In a post here last Thursday (Still A Bear‑Market Rally?), I argued the April–May bounce was a policy‑fragile technical rally. On Monday, market technicals looked a lot less fragile: 

1. Breadth thrust – Over 50% of S&P members closed above their 200‑DMA (first time since February).

2. Index breakout – S&P finished ~1 % above its own 200‑DMA (~5 750).

Even Pharma Joined In

Everyone expected a rally on Monday after the ceasefire in the U.S.-China trade war over the weekend. What I didn't expect, though, was pharma stocks to join in that rally, in light of President Trump's executive order lowering drug prices. In a post written before the market open (Profiting From A Pharma Panic), I mentioned about a couple of pharma trades I had teed up if the sector opened in the red.

The Pharma Panic Yesterday That Wasn’t…

After President Trump announced on Sunday that he’d be signing an executive order on drug pricing on Monday, I expected pharma stocks to open in the red. But the relief rally from the 90-day truce in the U.S.-China tariff war lifted even pharma names.

…But Was Today

At least in one name, the “Company A”, I had written this about before today:

Company A

This is a biotech stock with the following ratings via Chartmill (these are all on a 0-10 scale, except for the Piotroski F-Score, which is on a 0-9 scale, with 9 being the best).

• Overall technical: 10

• Overall fundamental: 8

• Profitability: 8

• Health: 8

• Growth: 8

• Valuation: 9

• F-Score: 9

This stock beat on top and bottom lines when it reported its earnings this month.

• How I’m playing it

  • Bull‑put credit spread: Taking advantage of expensive puts to collect a net credit which we'll get to keep if the stock doesn't fall further over the next few months.

  • Equity kicker: Allocate part of that credit to Jan 2026 OTM calls. Theta from the spread finances the lottery ticket.

That company dropped 25% today, on a downgrade based on some potentially negative regulatory news, but that looks like an overreaction. The options strategies I mentioned above still make sense here, just at lower strikes.

We got pullback (albeit, much smaller) in our "Company B" today as well. Here's what I wrote about it yesterday: 

Company B – The Diabetes Moonshot

This one is a pure speculative bet—but with asymmetric payoff.

• Catalyst

  • First‑in‑human trial just made its debut participant insulin‑independent after 30 years of Type‑1 Diabetes. Not only doesn't he need to take insulin, but he doesn't need to take any immunosuppressant drugs either. No safety issues so far. We bought shares of this one when the initial news came out early this year, but the company just mentioned that this individual has gone a few more months with no reported issues.

• Risk

  • Biology can always surprise.

  • FDA hurdles, capital raises if share price pops.

• How I’m playing it.

  • Unlike earlier this year, this name now has options traded on it. I’m buying January 2027 calls on it.

If you're a subscriber to the Portfolio Armor trading Substack, check your inbox for the trade alert on these names I sent out today; if you're not a subscriber, you can subscribe below. 

And if you'd rather limit your risk here, you can download the Portfolio Armor app by aiming your iPhone camera at the QR code below (or by tapping here, if you're reading this on your phone). 

If you'd like to stay in touch

You can scan for optimal hedges for individual securities, find our current top ten names, and create hedged portfolios on our website. You can also follow Portfolio Armor on X here, or become a free subscriber to our trading Substack using the link below (we're using that for our occasional emails now).