MDVN - Options Insider Makes $40 Million in One Minute.

Discussion in 'Options' started by livevol_ophir, Mar 3, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    Details, trades, prices, skews, charts here:

    Read the first MDVN blog by <a href=""><b>Clicking Here</b></a>.

    MDVN is trading 12.92 down $27.33 or 67.9%. IV30&#8482 is down 175 points or 68%.

    The news, obviously, wasn't good - the drug candidate for treating Alzheimer's disease proved largely ineffective. The full Reuters Key Development from Livevol Pro is included (in the article).

    Bloomberg reports ~16,000 Apr 40 puts were purchased yesterday right before the close for $14 - now worth $27. That's $13 x 100 x 16000 = $20.8 million. The Bloomberg report of above is actually missing info.

    4200 + 5200 + 4200 + 4200 = 17,850 right on market close for $23 million. BUT THERE's MORE:

    These were spreads - they also sold calls!
    2535 + 3169 + 2535 + 1500 = 9739 calls for $17,140,640 profit.

    That's over $40 million in probable insider trading. The Time & Sales Snap from yesterday is in the article.

    Let's re-visit some of the observations from the first blog in Feb (2/4):

    (1) The Feb vol is still in the 70's even though the news is due for after Feb expo. The ATM straddle (Feb 35) is still priced: 3.55 x 4.15. In other words, fair value is ~ $4 on a $35 stock, or 11.5% for two weeks.
    <b>-- New Comment: That straddle was a sale; on expo the stock closed 37.62.</b>

    (2)The Jun 35 ATM straddle is worth about $25 (ish). A purchase would require the stock to move above $60 or below $10 - now that's some juice. 25/35 = 71% implied stock move by end of June.
    <b>-- New Comment: That straddle was also sale; the puts are worth ~$22, the calls are worth ~zero.</b>

    (3) The March ATM straddle is ~$14.50 fair value. A purchase of March and sale of Feb costs ~$10.50. If Feb rolls off as close to worthless (i.e. stock trades $35 at expo) you could own a $10.50 straddle that has fair value of $25 in June with news in March. I'm pretty sure more news is coming after March just looking at these prices. I leave it to the reader for more complete research.
    <b>-- New Comment: Selling Feb to purchase March would have been an ~ $18 winner (or $1800 for one single straddle).</b>

    (4) The March 45 calls have fair value $4.60. The March 25 puts have fair value $2.55. Both are ~10 out of the money.

    (5) The March 65 calls are worth $2 - whoa! Enough said. You could buy 1 March 50 call for ~3.60 and sell 2 Mar 65 calls @ ~2 and receive 0.40. You make money unless the stock goes above 80! That doesn't mean it's a good trade, it means the option markets are pricing that as a legitmate possibility. That's ~1500% annual return for $35 stock going to $80 in a month.
    <b>-- New Comment: Another winner - but not as good a trade as the others. If the news was opposite (stock up $27 --> $73) the sale was still good.</b>


    Clearly buying the March ATM straddle was a winner - and even more so if you could have funded it with what ended up an expensive Feb straddle. Bio-techs are extraordinarily difficult to trade and feel sort like a coin flip really. I get the feeling someone always knows more than I do (i.e. biology, medicine experts).

    The basic rule is buy the ATM straddles in the month of news and sell the wings. Having said that - I wouldn't have wanted to sell the 20 puts @ .20 (or whatever) since the're worth $7 now.

    The Charts Tab is included (in the article). The bottom portion of the chart are the vols: IV30&#8482 (red) vs. HV20&#8482 (blue). The yellow shaded area charts the vol difference.

    Finally the Skew Tab is included (in the article) for both days (2/4) and today.

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

    The shapes are fairly similar - what's easily lost are the absolute vol levels. Looks like ~60 point vol drop for the second months.

    This is trade analysis, not a recommendation.

    Details, trades, prices, skews, charts here:
  2. Calls?......please tell me that should be puts instead. :eek:
  3. livevol_ophir

    livevol_ophir ET Sponsor

    yes, yes.. sorry... puts bot, calls sold... thank you!
  4. How do you know this isn't a legit order placed by an existing shareholder to hedge his position?

    Didn't I tell you in Feb. Livevol that the drug was flawed?
  5. Whoever was on the wrong side of that trade may have to pray for that Alzheimer's medication to be developed! :(
  6. livevol_ophir

    livevol_ophir ET Sponsor

    2 big reasons we know it probably wasn't a hedge:

    (1) The timing (literally at the close)
    (2) The prices

    A large hedge is negotiated. The puts traded 14 on 13.20 x 14 market - that's insanity.
  7. nitro


    I can't remember what the IV was.
  8. When i used to work for a drug company I used to go to the FDA when meetings were held about our drugs.

    The number of sharks that would turn up at the meetings was phenomonal.

    All these intense looking people with cell phones glued to their ears reporting minute by minute what was being said...especially any liitle comment by an FDA reviewer.

    The FDA is pretty tolerent of all this...once when one of our drugs was under review I stationed one of my people in the hall outside of the reviewer's office...ostensibly to offer help if needed but also to pick up any little tid-bits that might float around. She stayed there for a couple of weeks.

    Once in a while I would have to give a presentation and having these people staring at me, reporting every word I said on their cell phones was pretty unnerving.

    It can and obviously does mean big money to the people who play it.

    This trade can't be legit. If the sec doesn't get them something is seriously wrong.
  9. livevol_ophir

    livevol_ophir ET Sponsor

  10. Surely and seriously, have faith in the Market Surveillance Department at the CBOE. :cool:
    #10     Mar 3, 2010