OK, here's one: First the background on IMCL vs. ABGX (From briefing): "Abgenix: Preview of Panitumumab's Phase III data (ABGX) 10.46 -0.53: ABGX is seeing increased volatility ahead of key data expected over the next week. The co is expected to release the results of a Phase III study in Panitumumab in 3rd/4th line refractory colorectal cancer. Panitumumab, a fully human monoclonal antibody targeting the EGF receptor, is 50/50 partnered with Amgen (AMGN) and belongs to the same class of drugs as DNA's Herceptin, DNA/OSIP's Tarceva, or AZN's Iressa. Probably the closest competitor to ABGX's drug is BMY/IMCL's Erbitux, a chimeric MAb also being used for the same indication. Most biotech investors seem to believe Panitumumab's entry will hurt Erbitux's prospects, and have been selling the shares in anticipation of the data. Indeed, while Panitumumab and Erbitux are likely to show similar efficiency, Panitumumab's more flexible dosing regimen (Every 2 wks vs 1x a week) and better safety profile could give it the upper hand. Also worth noting, Erbitux was approved based on Phase II data showing objective responses and median duration, yet Panitumumab's trial has overall survival as a secondary endpoint, meaning the label could include a survival claim. Primary endpoint is progression-free survival. The analyst community in general is fairly positive on ABGX, with 50-75% chance of positive data seen. With estimated peak sales of around $1 bln, Panitumumab holds the key ABGX's future, so be sure to expect an outsized move when the data hits the wires. (Considering the complexity of the data to be released (several endpoints), the safest bet could be to play either IMCL or AMGN off of ABGX's reaction.)" ____________ So here's the trade. Short ABGX, and short <b>an equal dollar amount</b> of IMCL, and carry it into next week until the announcement. Why? The loser of the two has more to lose than the winner has to gain. The two possible results: A) The ABGX phase 3 trials go well. ABGX goes up a bit, but IMCL should go down more, percentage wise. Remember when DNA came out with their positive macular degeneration drug results this past spring? DNA was up about 15%, but EYET went down over 40%. B) The ABGX trials fail. This is the better of the two possible announcements for my trade. ABGX would get absolutely <b>smoked</b>. Down 30-50%, according to my estimates. IMCL goes up... but nowhere near a 30% gain.
One more I'm in: Short MO OCT 70 straddle at $4.12 total credit. Minor court case (Mon), earnings (Wed morning) - but I doubt that's any reason for this stock to move more than $4 one way or the other, before next Friday.
Not sure if a bet on low volatility is best for MO right here. I'd want to trade it into $66. Either way you'll break even if it moves $4. Does it pay to construct a strangle as well with cheaper OTM's?
I like it. Come Monday, if you get a fast print to $27.56 things should move along. Don't leave your stop order hanging with the specialist monday morning. Put the order in realtime when and if. Thanks for the heads up. It should move either way.
The 75/65 strangle is really the only one possible in OCT options. While it would almost certainly work (Netting $0.85), it would chew up alot of margin for such a relatively small reward. I like the 70 straddle alot better.
Good point. And, if it moves into $66 or $74 you will have the option of writing a new straddle, time permitting. I'm interested in how this will go down so if you don't mind i'll tag along until next week and see how you manage this trade. Thanks.
I'm looking to exit this on Tuesday, or (more likely) Wednesday. Writing a second straddle isn't something I'd consider doing. If MO underlying stays close to the 70 strike, and I'm able to cover the straddle under $2.75 on Tuesday, pre-earnings, I'll do so. At least partially. Also theoretically possible: The underlying makes some surprise giant move early next week, my position is deep in the red, and I'm forced to re-evaluate the whole situation. After earnings come out on Wed. morning, the premiums come way down, and I'm almost certainly getting out that day. Rather than hanging on to drained cheap-premium options for a low yielding crap shoot on their final 2 days, I'll have better things to do with my capital. GOOG and many others have earnings coming out late next week and could set up some interesting plays.
Thank you for the explanation. First, when you hunt for juicy premiums, short exp., and sizable move in the underlying how do you determine which is best of breed among the bunch and based on what order of criteria? Second, do you have access to an option screener and does a good one exist? Hopefully, the underlying will stick in this price range but i'd like to know in general terms how you would fix this setup if we get deeper prices. I appreciate you taking the time to comment on this topic.
Thanks for the pos words Cluseau. We'll see if it works out. You got any short ideas? I'm inclined to short sub- prime lenders on a bounce.