McKesson (NYSE: MCK) one the largest medical supply wholesalers in the world delivered extremely disappointing earnings after the close on 10/27/16 and the stock delivered a rapid and significant decline falling as low as $140 after closing at $160.50.  Earnings per share came in at $1.34 per share vs. estimates of $3.05 per share.  Revenues also missed coming in at $49.6 billion vs. estimates near $51 billion.

We’ve held this stock since May 16 and hedged it with a November 18 put option on September 19th at a price of $4.70 which is likely to deliver a nifty profit if sold at the open as I recommend in this alert. I own the put option and will be doing so myself. 

The company’s miss was related to what I’ve been warning against lately, “softer pricing” in the U.S. secondary to changes in Medicare, formulary restrictions and price controls by insurance companies.  And it looks as if it’s going to get even worse.  The worst part of the earnings report was the major cut in guidance earnings guidance from $12.35 to $12.85, down from $13.43 to $13.93 for the fiscal year. Sell McKesson.

Sell to close McKesson November 18, 2016 Put Option (MCK_111816P170) at the open.   

Amgen (NSDQ: AMGN), one of the leading biotech companies in the world, delivered earnings news after the close on 10/27/16. GAAP earnings came in at $2.68 per share vs. expectations of $2.78 per share while non GAAP earnings came in at $3.02 per share.  Revenues were $5.8 billion over the quarter. The company increased its earnings guidance for the year to $9.94-$10.11 and revenues to $22.6-$22.8 billion on a GAAP basis.   The company also noted that sales were flat for the quarter. 

Anyone who used the Hard Sell Stop I recommended on 10/3/16 was out of this option before the earnings news.  Anyone who stuck with it should sell it now.

Here is the trade summary:  

Part 1) Amgen October 21, 2016 175 Call Option (AMGN_121616C170).  Bought 9/23/16 at $3.25. Rolled 10/2/16 at 0.50.  The original trade was posted here.

Part 2) Buy up to $6. Amgen December $170 Call (AMGN_121616C170).  Bought 10/03/16 at $4.53.  10/14/16 closing price $3.48.  Hard Sell Stop $3.  Dr. Duarte had a position in this option roll.  The roll recommendation was posted here.

Sell to Close Amgen December $170 Call (AMGN_121616C170).