Nearly 50% of its small float is short and they have a major FDA announcement on its cancer drug in March. Obviously, this stock should be extremely volatile when the announcement is made. I'm very inexperienced with options, but I figure there has to be some way to make money off this volatility. I'd like to simultaneously buy both calls and puts to make money off the volatility. For example, I was looking at buying the $15 April calls as well as the $7.5 April puts. Does this make sense or is there a better way to make money off the expected volatility?
These puts and calls are currently priced at some 300% IV. As soon as the news comes out, they'll get crushed into the 30% or 40% range. Just keep in mind that you're digging yourself out of a VERY deep hole if you buy options here.
You could sell a calendar spread to take advantage of the collapse in IV. However, if you get the direction of the underlying wrong, it will be hard to make a profit even if you get IV right. In fact if you get direction wrong, it will be hard to make money from any strategy. Better to know an insider at FDA (wink.)
AGIX is onthe SHO list. These guys occasionally make mistakes, but it's tough to bet against them. To say it's a crowded trade when they've shorted more stock than is available is an understatement. It they are wrong, and you are short, it's a huge number. If they are right, and you are short, the move would be muted anyway. They do anything they have to do to get information. Odds are, the FDA news will be bad.
It will cost you approx. $8 to buy that strangle. If AGIX's implied volatility (IV) drops (before exp) to its historic avg of .50 upon release of the news, AGIX will have to drop below $2 for you to break even. On an expiration basis, AGIX will have to go to MINUS 50 cts for you to be even (which obviously can't happen). So a worthless company loses you money. To the upside, break even is $23. Does this sound like a good bet? With all due respect, there are no free lunches with options There is no easy money to be made. As a newbie, aim for small consistent gains that can be made without big risk (spreads, collars, hedged stock). Keep your losses small. AGIX is not in that category.
it was obvious that the originator of the thread was an inexperienced option trader. only 1 respondent spindr0 had the common sense to write out what IV stands for.
Some combo suggestions were posted on this thread: http://elitetrader.com/vb/showthread.php?s=&threadid=85902
The last news that I read said that the company expected to present the results no sooner than late in the first quarter and was hoping to present results at the American Cardiology Conference which begins Mar 20-something. That's after Mar expiration... hence the reason for the current IV balloon in April.
The strikes are plentiful on this one. With the right news, it could definitely double or triple, but does anyone really believe that it will septuple, octuple, nonuple, or even decuple? AZD