AMAG is trading $19.74, down 0.8% and earnings due out today after the close. The <a href="http://www.livevol.com/">LIVEVOL⢠Pro Summary</a> is <a href="http://livevol.blogspot.com/2010/10/amag.html">in the article</a>. <img src="http://www.livevolpro.com/help/images/blog/amag_summary.gif" /> ------------------------------------------------------------------- <a href="http://www.livevolpro.com/help/free_trial.html"><img height="200" src="http://www.livevolpro.com/help/images/blog/lvp_trial_ad.gif" /></a> For a limited time we are offering a FREE real-time trial to Livevol Pro⢠for non-professional traders. You can get your trial by following the directions here: <b><a href="http://www.livevolpro.com/help/free_trial.html">Click for Free Trial Offer</a></b> ------------------------------------------------------------------- I found this one searching through the Calendar Tab looking for a pharma/bio-tech with earnings approaching. Why would I do such a thing?... I like the small bet, big reward you can sometimes find in the high vol bio-techs on earnings. Trades which have a high probability of losing, but ones where the payout may in fact be greater than the bad odds. First, let's look to the Charts Tab (<a href="http://livevol.blogspot.com/2010/10/amag.html">in the article</a>). The top portion is the stock price, the bottom is the vol (IV30⢠- red vs HV20⢠- blue vs HV180⢠- pink). <img src="http://www.livevolpro.com/help/images/blog/amag_charts.gif" width="600" /> As expected, we can see elevated IV30⢠coming into earnings. The ATM straddle in Nov is actually priced at 100 vol (10 points higher than the IV30â¢). I have also highlighted the last earnings cycle for AMAG where it moved huge in the two days following earnings (about $7 down). For completeness, let's look to the Skew Tab (<a href="http://livevol.blogspot.com/2010/10/amag.html">in the article</a>). Again, as expected, we can see a massive divergence between the Nov and Dec. Nothing necessarily "unusual" here. Ok, now to the Options Tab (<a href="http://livevol.blogspot.com/2010/10/amag.html">in the article</a>). You'll note that there isn't a lot of trading in there right now, which isn't good in terms of liquidity, but what the hell, let's investigate a little gamble here. <b>Possible Trades to Analyze</b> Ok, here's the long shot, both in terms of getting an execution and then in terms of actually winning to it. 1. Do the Nov 19/20/21 call butterfly paying $0.10. This yields a max loss of the debit or $0.10 (excluding commissions and pin risk) and a max gain of $0.90. 9:1, decent. How about this.... 2. Ok, Sell the Nov 20 straddle @ $3.90 ($1.85 in calls, $2.05 in puts). Buy the Nov 19/21 strangle for $2.95 ($1.40 in calls, $1.55 in puts). That leaves a net debit (and max loss) of $0.05, with max gain $0.95. Oooo, 19:1, that's nice. With both these trades there is execution risk, and both are most likely losers. But... the butterfly (or condor) for 19:1 payout, feels like a small little bit that may be worth throwing the dice on... small... Just to be clear, these trades for $0.15 or even $0.10 have a vastly different MaxGain:MaxLoss ratio, so a nickel difference is huge here. I intended this more as an example of what to look for in bio-techs on earnings. You'd be surprised at the prices you can get. This is trade analysis, not a recommendation. <b>Follow Live Trades and Order Flow on Twitter: @Livevol_Pro</b> Details, trades, prices, vols, skews, charts here: <a href="http://livevol.blogspot.com/2010/10/amag.html">http://livevol.blogspot.com/2010/10/amag.html</a> Legal Stuff: <a href="http://www.livevolpro.com/help/disclaimer_legal.html">http://www.livevolpro.com/help/disclaimer_legal.html</a>
Slight correction; trade #2 should read as a credit: 2. Ok, Sell the Nov 20 straddle @ $3.90 ($1.85 in calls, $2.05 in puts). Buy the Nov 19/21 strangle for $2.95 ($1.40 in calls, $1.55 in puts). That leaves a net credit of $0.95 and max loss of $0.05, with max gain $0.95. Oooo, 19:1, that's nice.