Monday, September 29, 2025

Lottery Ticket Biotech Goes Boom

Every so often we throw around the term lottery ticket biotech which might be a term I can claim originality for. This first came up in 2006 when a company called Pozen had a migraine drug that didn't get full approval because of safety concerns and the stock fell 61%.

We have another one today that resulted in an 89% decline as of early on Monday.


MLTX' late stage drug to treat hidradenitis suppurativa didn't have safety issues but was less effective than a drug made by a competitor. 

I don't know the company or the story beyond the Bloomberg report but it seems reasonable to conclude that the stock/drug presented an asymmetric opportunity, the opportunity soured obviously and the price reaction show the downside of allocating to asymmetry.

The message from me is not don't do this but to understand the risks and size the asymmetry correctly. Don't start so heavy that a wipeout does serious financial harm. It's a little trickier if you started small with something like 1-2% and it grows to 10-20% so have that mapped out going in so you don't react out of greed or fear or some other emotion.

YieldMax Tweeted a survey about what fund they should come out with next and the comments were predictably brutal telling them to fix the NAV erosion on the current funds and there were a lot of complaints about their Strategy fund MSTY.

Maybe MSTY is down a lot (it is) but my first thought was TSLY, their Tesla product. 


This is a pretty good sampling of the Tesla ETF ecosystem. TSYY sells put spreads on TSLL which is a 2X fund, TSLY is the YieldMax covered call fund and CRSH is a YieldMax product that sells short (synthetically) and sells puts.

Several of the funds really got punished by the decline in the common during the worst of what I will call crazy CEO fallout. The lift in CRSH is interesting. The fund is synthetically short the common so it probably should go up when the stock falls but the covered puts could get in the way of that and while they did a little, that the fund went up at all in the spring is impressive. 

The erosion here really is brutal. The volatility drag is harsh. The stock is very volatile and the crazy CEO risk makes for a difficult hold. When they first came out with CRSH, my initial reaction was to wonder if this might be a better mousetrap strategically. I don't think I said this on the blog so it doesn't count.

If you do a similar study on Nvidia and look at DIPS which is the same strategy as CRSH, it had declined by 36% on a price basis since it listed, NVYY which is the equivalent of TSYY selling puts on a 2X NVDA fund is sort of flat, down just 6% against the common which is up more than 50%.

This really is crazy stuff that is interesting to look at and if nothing else, this reiterates that these funds do not track the common. The performance of the common is an influencer but the bigger story is that these funds sell the volatility of the common.

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.

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