UPDATE 6/21....
New strategy: LONG STRANGLE (Buy put options and call options)
So far this is the best thing that could have happened to the stock. The price is rocketing up. This makes the put options extremely cheap.
What you should do now is buy both puts and a calls. What your doing now is playing Volatility.
The stock will move one way or another when the FDA makes its decision. It will either gain 60-80% on approval or fall 80-90% on a CRL. Either way, you should be able to make money or effectively hedge your bet so you will lose only a slight bit. Essentiall yyour going for a double, but you can still hit an in-field Home-run.
The put or call (whichever your playing) is a hedge, so you will make moeny each way, but you want to buy more of the one that you think will happen.
Example.
Buy Put - July 2012 - $6 Strike = Cost $0.60
Buy Call - July 2012 - $14 Strike = Cost $1.00
4 example outcomes...
FDA approved. Stock goes to.
$20 - Make 600% on Call option. So the total value = $600 - $60(cost of put) = $540 net. From a $160 investment.
$15- Break even.$15-14 = $1, but you also paid $1. Break even on call. But lose $60 on Put option, therefore you lost $60 on a $160 investment.
Again your looking for Volatility (you want the stock to move extremely up or extremely down)
FDA denies (CRL). Stock falls to.
$5: 6-5 = 1/.60 = 66% gain or a $40 gain on $60 option
$1.50: 6-1.50= 4.50/.60 = 7.5 or 750% gain on a $60 option which equals 60 x 7.5 = $450 - 100 loss on call option = $350 net gain.
This is only taking into consideration purchasing 1 single option of each.. You multiply the gains by the number of options you ultimately purchase (on both sides).
New strategy: LONG STRANGLE (Buy put options and call options)
So far this is the best thing that could have happened to the stock. The price is rocketing up. This makes the put options extremely cheap.
What you should do now is buy both puts and a calls. What your doing now is playing Volatility.
The stock will move one way or another when the FDA makes its decision. It will either gain 60-80% on approval or fall 80-90% on a CRL. Either way, you should be able to make money or effectively hedge your bet so you will lose only a slight bit. Essentiall yyour going for a double, but you can still hit an in-field Home-run.
The put or call (whichever your playing) is a hedge, so you will make moeny each way, but you want to buy more of the one that you think will happen.
Example.
Buy Put - July 2012 - $6 Strike = Cost $0.60
Buy Call - July 2012 - $14 Strike = Cost $1.00
4 example outcomes...
FDA approved. Stock goes to.
$20 - Make 600% on Call option. So the total value = $600 - $60(cost of put) = $540 net. From a $160 investment.
$15- Break even.$15-14 = $1, but you also paid $1. Break even on call. But lose $60 on Put option, therefore you lost $60 on a $160 investment.
Again your looking for Volatility (you want the stock to move extremely up or extremely down)
FDA denies (CRL). Stock falls to.
$5: 6-5 = 1/.60 = 66% gain or a $40 gain on $60 option
$1.50: 6-1.50= 4.50/.60 = 7.5 or 750% gain on a $60 option which equals 60 x 7.5 = $450 - 100 loss on call option = $350 net gain.
This is only taking into consideration purchasing 1 single option of each.. You multiply the gains by the number of options you ultimately purchase (on both sides).
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