How To Play Pozn- Fda Annoucement Aug. 1

Discussion in 'Options' started by dstod, Jul 16, 2007.

  1. Thanks spindr0.

    Was it IV Trader who said he likes to trade these for FDA announcements? Someone said they did a few months ago when NFLD was the hot ticket.
     
    #11     Jul 18, 2007
  2. spindr0

    spindr0

    I don't know but it makes no difference with POZN. Take a look at the ATM calendars.

    Aug 20c 3.40 - 3.50
    Sep 20c 3.60 - 3.80

    Aug/Sep 20c RC offers a credit of 10 cents

    Aug 20p 3.70 - 4.10
    Sep 20p 3.90 - 4.30

    Aug/Sep 20p RC "costs" you 20 cents to play.

    For the sake of argument, suppose there's a big move and all options go to parity. With fills at the natural B/A, the call RC has the potential to make you a dime, ignoring exit slippage and commissions. LOL.

    In reality, there's a chance that the move is more moderate and the Sep options retain some time premium. Then it's worse then pizza money. You're paying the guy's mortgage. :D

    There's no standard RC play at this point in time.
     
    #12     Jul 18, 2007
  3. There is a huge b/a spread , no way to make good entry on this one...
    The traditional RC here would be buy AUG 20th straddle + sell JAN 08 straddle for 2$ credit. AUG atm straddle (street) factors in a 35% binary outcome , plus the leaps vols collapse to lower 50th.
    If FDA date delay pass AUG expiration , RC will be a disaster .
    Hope it helps
     
    #13     Jul 18, 2007
  4. Alpine

    Alpine

    So when we expect a stock will make a significant move, but imp vol will come down, which strategy will capitalize on price movement and volatility decrease?
     
    #14     Jul 29, 2007
  5. spindr0

    spindr0

    Not being on the other side of the move :)
     
    #15     Jul 29, 2007
  6. I would buy 1 call in this case. A $20.00 call looks fine to me.

    Breakdown of why I would only buy a call:

    $2.50 for the call

    $3.50 for the put

    August expiry

    Downside target: $10.00

    Upside target: $30.00

    gain on upside $10-3.50-2.50 = $4.00

    gain on downside $17.50-3.50-2.50-10.00 = $1.50

    There is minimal gain on the downside. The risk versus reward for the given approval is much better on the long side, even if the Market is undergoing a major correction over the period before the option expires.
     
    #16     Jul 29, 2007
  7. nikko309

    nikko309

    So we should take directional positions based on how much the option can make rather than which direction the stock might go?

    The problem with your analysis is that with the stock at 17.50, you're comparing an ATM 17.5 put with an OTM 20 call. In addition, you're postulating a 7-1/2 pt drop versus a 12-1/2 pt rise. Under such circumstances, obviously the 17.5p will cost more.

    Yes, the risk reward of your scenario is better on the long side. But the odds of POZN moving 12-1/2 pts up are a bit more stiff than 7-1/2 pts down.

    Try comparing a put and a call that are equidistant from the stock's price and see what you come up with.
     
    #17     Jul 30, 2007
  8. I don't care about put call parity. The fact is fundamentally it either goes to $10 or $30. Obviously it may lag on its way to $30 and the August call may not achieve the kind of profit I suggest. But to play both sides when one side is more in your favour suggest more an obsession with being "market neutral" than an understanding of fundamentals of this event.

    If you want a record of biotech option trades I've made in the last 3 years I'll send it to you.
     
    #18     Jul 30, 2007
  9. nikko309

    nikko309

    LOL. Who's taking about put/call parity?

    Claiming that the the risk/reward is in your favor with the calls based on a premise that the stock is more likely to rise 12-1/2 pts than it is to drop 7-1/2 pts is specious.

    You buy the calls because you think the stock is going up.
    You buy the puts because you think the stock is going down.
    And with the huge IV expansion, direction might be a bit relevant :)

    You don't buy the calls because you think it could rise more than it could drop.

    And as for your track record, who cares?
    That has nothing to do with the prices of POZN's options.

    Good luck with this type of speculating.
     
    #19     Jul 30, 2007
  10. Thought about the synthetic call at all?
     
    #20     Jul 30, 2007