OSIP may be another negative vega play to look at. Vol levels have been pumped up in anticipation of an FDA decision that's expected to come in sometime over the next few weeks. While that obviously means the stock could go anywhere on the news, I bought some cheap ATM flys, betting (hoping) that either vol implodes on the news or that the decision doesn't come down and the stock goes nowhere before May expiry. We shall see.
How about long stock, long 45 call, long 35 put, short twice as many 40 calls? 1 to 4 risk ratio alittle better than the call fly.
It's the same trade... break it down: long stock (+) short *2 40C = synthetic short straddle @ 40 strike. long 35P (+) long 45C = long outside strangle When combined, a long 35/40/45 iron fly -- equiv. to a long call or put fly at same-strike.
Regarding OSIP; no matter what the play, it's a gamble. I would only consider going long a backspread on this one. Short atm call(put)//long*2 otm calls(puts). Personally, I'd roll over until the urge passes.
Yes, well I'm weak-willed by nature and thus unfortunately couldn't suppress the urge myself. But with regard to the backspread idea, I'm not sure I'd want to be long vega given my thesis for the trade. Plus, my risk on the fly is really negligible.
As Arb said, same thing. Also, the risk:reward on the fly at 80 cents (my price) is actually 1:5 (plus a few basis points). And under Reg T, a lot less capital is tied up on the play with the fly vs. the synthetic.
HD, OSIP popped up on my radar about a month or so ago. The vols are pumped up for the FDA meeting. They are expecting news any day from the FDA and most definitely by May expiration. The consensus is that the news will be good. Good news could easily move the stock 8 to 10 pts to the upside. Bad news will cut the stock in half. I decided to pass on this play. Your fly is not a bad idea but I would push the fly up a few strikes. That way you accomplish what you want from the vol implosion and have the long deltas if the news is good and you get a pop. If the stock gets crushed it won't make any difference if you do the ATM fly or the OTM fly. Good luck on that trade!
Thanks, Mav. That's a good idea. I went ATM simply because I lacked any sense of where this thing might go over the next 2-3 weeks and saw a ton of O.I. at the 40 strike. Also, based on what I read, I was under the impression that the FDA decision was expected to come down in the next few weeks, but that that wasn't a certainty. But your scenario sounds very plausible and you very likely could be privy to more info on this one than me. Two related alternatives come to mind as well. One is to put on two OTM flys each, say, 2 strikes OTM to cover both outcomes. Obviously, the downside for the increased probability is the lower profit potential. A second variation, which is what I did with TASR, is to string several flys together to create a long condor (though my TASR one is asymetrical). But again, it's the same trade-off. So all things being equal, I'd rather just go with a single cheap fly and hope to get lucky with the strike (i.e. RIMM). And who knows. A few more days like today, and the 40 strike could soon be 10 points OTM anyway!
If the news is expected to be good, how much of it may already be in the price? Superficially at least, the May 25/30/45/50 iron condor looks attractive, giving b/e between 28 and 47 based on todays prices. But then I find these news plays very difficult to make work!
Yep. I saw OSIP a while ago and have been tempted to go short vega for a few weeks but have resisted the urge. I did do some research, before I passed up on it. I went to Thomson One and the latest research report was from Lehman, which stated the company guided the release of the research in the Tarceva trial for early 04, probably around April or May. I only scanned the report for a few seconds but Lehman was saying that the Co is releasing trial data from a study by the Canadian Institute for Science or whatnot. The drug would still need to undergo an advisory panel from the FDA, and then the actual decision after that. I could be wrong on that since I just glanced at the report but that is what I recall reading. The issue for me with OSIP is that I think the stock will probably be trading at least 10 points higher or 10 points lower of where it closes at going into the research release, so then it really becomes a gamble of where the underlying is trading. I was contemplating doing two flies on it, one on either side but then I'm still just hoping that i get lucky and gaps exactly where I need it to be