CRTX November very high IV (480% !), and big position at far far OTM 185 strike

[newwurldmn]

What about this: https://optioncreator.com/stz8n4q
Ie. just write ATM Calls and Puts

If that’s a good trade, explain why the 185 call is 20 bid.

 

[thecoder]

If that’s a good trade, explain why the 185 call is 20 bid.

Sorry, don't understand. Pls elaborate what you mean with "... is 20 bid".
Do you mean there is an order in the book to buy 20 Calls of the 185 strike?
I unfortunately don't have access to realtime order book data... just the Yahoo data :-(

The risk is only at the right side, ie. if the stock rises more than about 113% to above 161 or so.
If there weren't the big 185 OI then the above strategy would not be bad, IMO.

 

[trend2009]

what do you think the downside is? And why?

I think the downside is 7 because that’s approx their cash per share. There’s some second drug in the pipeline but my guess is the market is discounting that heavily.

I sold put with strike at 15,premium 3. I think pretty safe

 

[newwurldmn]

I sold put with strike at 15,premium 3. I think pretty safe

i take it you haven’t traded a lot of biotech.

why do you think that’s safe? Are you just saying that because 15 is far away from 75?

 

[newwurldmn]

Sorry, don't understand. Pls elaborate what you mean with "... is 20 bid".
Do you mean there is an order in the book to buy 20 Calls of the 185 strike?
I unfortunately don't have access to realtime order book data... just the Yahoo data :-(

The risk is only at the right side, ie. if the stock rises more than about 113% to above 161 or so.
If there weren't the big 185 OI then the above strategy would not be bad, IMO.

someone is willing to pay 20 for the 185 calls.

you disproved black scholes so you clearly understand all this.

 

[thecoder]

someone is willing to pay 20 for the 185 calls.

Ah, ok, got it now.
Yes, you are right, it means that people think the stock will reach spot 185 on the D-Day (FDA decision or so).
Otherwise one would expect a much lower Bid (normally pennies) for the 185 strike.

you disproved black scholes so you clearly understand all this.

But Black Scholes is there to stay much longer, as it's the standard. So, we've to live with it...

 

[thecoder]

i take it you haven’t traded a lot of biotech.

why do you think that’s safe? Are you just saying that because 15 is far away from 75?

If the stock falls more than 80% to below 15 then SHTF
But unrealistic, IMHO, so indeed a safe bet, IMO.

 

[newwurldmn]

If the stock falls more than 80% to below 15 then SHTF
But unrealistic, IMHO, so indeed a safe bet, IMO.

why is that unrealistic?

 

[trend2009]

why is that unrealistic?

the cash is 7， so 15-7=8，premium is 3， the risk is 5. i can accept that.given they have another drug on hold, so I think little chance to go below 15, insider trading price above 30. Possibly I will use premium from selling put to buy call

 

[thecoder]

the cash is 7， so 15-7=8，premium is 3， the risk is 5. i can accept that.given they have another drug on hold, so I think little chance to go below 15, insider trading price above 30. Possibly I will use premium from selling put to buy call

Ie. practically saying the same as on this P/L chart: https://optioncreator.com/stz0tnq

(in this web application when entering the premium manually then it calculates the corresponding volatility%, but in this case it calcs it wrong, says just 30% instead of 472% or so as YahooFinance says)