GILD

[oldnemesis]

http://www.nytimes.com/2016/01/28/b...ghts-over-hepatitis-c-and-hiv-drugs.html?_r=0

http://finance.yahoo.com/echarts?s=GILD+Interactive#{"range":"5y","allowChartStacking":true}

Gilead's ride may be over... or at least attenuated:

Trade:
with GILD at 89.63
Jan '17 125/130 bear call spread for a net credit of $35
Yield = 35/465 = 7.5% in 358 days or 7.7% annualized
Prob = 87%
Expectation = .87(35) - .106(465) - .02(233) = 30.45 - 49.3 - 4.7 = -23.6

Price............ Profit / Loss........ ROM %
65.00.................. 35.00............. 7.50%
85.00.................. 35.00............. 7.50%
100.00................ 35.00............. 7.50%
120.00................ 35.00............. 7.50%
125.00................ 35.00............. 7.50%
125.35.................. 0.00............. 0.00%
130.00.............. (465.00)........ -92.50%
145.00.............. (465.00)........ -92.50%
165.00.............. (465.00)........ -92.50%

 

[shocka12]

New here. Can you point me in the direction of finding out more information on your expectation formula?

 

[oldnemesis]

Google 'expected value'. Then note that the first coefficient is the probability (i.e. the probability of success). Also note that the sum of the coefficients in my formula always sum to 1 (or very very close).
e.g. .87 + .106 + .02 = .996

Understanding what the probability and expectation MEAN is a whole other story which could only be provided by a course in probability and statistics and a subsequent course in the application of probability and statistics to real life.

 

[oldnemesis]

The GILD story has become more convoluted than ever with GILD now making noises about making one or more acquisitions with it's large cash hoard. Ignoring cash it could probably buy itself for a nice profit.



http://stockcharts.com/h-sc/ui?s=gild

Rather than wait further developments I would just buy back the spread and forget about the whole sector. It is too volatile for rational trading. I used to work as a consultant to biotech companies but even I get a headache reading about all the manipulation and convolutions.

The above spread can be bought back today for $10 leaving $25 in profit . Annualized that's 25/465 = 5.4% in 113 days or 17% annualized. Fine.