ALKS - Order Flow Pre FDA Wins

Discussion in 'Trading' started by livevol_ophir, Mar 15, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    Details, prices, charts, skews, trades here:
    http://livevol.blogspot.com/2010/03/alks_15.html

    ** UPDATE

    Read the first blog article here: http://livevol.blogspot.com/2010/03/alks.html

    ALKS is trading 13.50 up 1.29 or 10.6%. The IV30&#8482 is down 44%.

    The news is considered good. The FDA requested information - but it seems to be about labelling. They have not requested any more trial data. The news details are included (in the article).

    The Options Tab snapshot is included (in the article).

    Recall the trade from the last blog:
    Sell Apr 10 puts @ $0.45
    Buy Apr 12.5/15 call spread for $0.85 ($1.30 and $0.45)

    Now the puts have fair value: $0.10.
    The Call spread has fair value: $0.85

    So the two day PnL looks like this:
    3500 * 100 *{ ($0.45 - $0.10)+ ($0.85-$0.85)} = $122,500

    Note that the call spread didn't change in value even though the stock went up significantly. This is the effect of vol coming down so hard. This trade won because of the put sale. This is a good lesson in event vol - picking the right direction does not necessarily mean winning to a trade unless you sell some vol too.

    Finally the Skew Tab snap for Thursday and today are inlcuded (in the article).

    Skew Legend:
    Red - Front month
    Yellow - Second month
    Green - Third month
    Blue - Fourth month

    You can see how the back months have turned back into "normal" skews from the flatish pattern they displayed prior. To read why and what "normal" skew is, you can go here: http://livevol.blogspot.com/2010/01/solarfun-solf-call-purchases-with.html

    Details, prices, charts, skews, trades here:
    http://livevol.blogspot.com/2010/03/alks_15.html