IMCL Options....
- Thread starter palawan
- Start date
Disclaimer: Not a recommendation and not my position
How about this: Long Covered Calls, Long Puts - Bearish on IMCL
I know that Covered Calls are synthetic puts, but see the details and see if it makes sense.
Long 1000 Shares at 41.16 = Debit 41,160
Short 10 March 40 Calls (5 x 5.3) = Credit 5,000
Long 20 March 35 Puts (2 x 2.15) = Debit 4,300
Total Position cost = Debit 40,460
Scenario 1 - IMCL gets approval for Erbitux and stock takes off (more than 40/share by March Expiration) 1000 Shares get called and the puts expire worthless for a loss of $460
Scenario 2 - IMCL gets FDA rejection and trades at 20/share (based on experience with other one-drug companies, IMCL should trade lower) - Exercise 10 March 35 puts for a loss of $5460 on 1000 shares and sell the other 10 puts for a profit of $15,000 (Total profit of $9,540)
Scenario 3 - IMCL for some reason or another (i.e. gets approval but the stock behaves "sell the news", FDA announcement of delayed decision, etc.) and sells at 35/share on March Expiration. Maximum loss of position at -$5,460
Breakeven for the position is somewhere around 29.50/share for IMCL
Position Analysis: Sounds like a lot of trouble to get a discount on 10 March 35 puts, but it's a calculated-risk position.
Subjectively: If we give scenario-1 a 40% probability and Scenario-2 a 20% probability, then there is a 60% chance that it's a better position to have than outright purchase of 10 March 35 puts for a cost of $2,150
Given that Scenario-3 is a 40% probability (and any of the range 30/share to 39/share) then that's a calculated risk to even come out with the maximum loss, anyway...
I read that the majority ANALyst opinions are for the approval of Erbitux - fwiw.
Again, I'm just doing thought exercises here and the short-time spread (short March and long May) is something that I'm going to plot on a spreadsheet. Thanks.
How about this: Long Covered Calls, Long Puts - Bearish on IMCL
I know that Covered Calls are synthetic puts, but see the details and see if it makes sense.
Long 1000 Shares at 41.16 = Debit 41,160
Short 10 March 40 Calls (5 x 5.3) = Credit 5,000
Long 20 March 35 Puts (2 x 2.15) = Debit 4,300
Total Position cost = Debit 40,460
Scenario 1 - IMCL gets approval for Erbitux and stock takes off (more than 40/share by March Expiration) 1000 Shares get called and the puts expire worthless for a loss of $460
Scenario 2 - IMCL gets FDA rejection and trades at 20/share (based on experience with other one-drug companies, IMCL should trade lower) - Exercise 10 March 35 puts for a loss of $5460 on 1000 shares and sell the other 10 puts for a profit of $15,000 (Total profit of $9,540)
Scenario 3 - IMCL for some reason or another (i.e. gets approval but the stock behaves "sell the news", FDA announcement of delayed decision, etc.) and sells at 35/share on March Expiration. Maximum loss of position at -$5,460
Breakeven for the position is somewhere around 29.50/share for IMCL
Position Analysis: Sounds like a lot of trouble to get a discount on 10 March 35 puts, but it's a calculated-risk position.
Subjectively: If we give scenario-1 a 40% probability and Scenario-2 a 20% probability, then there is a 60% chance that it's a better position to have than outright purchase of 10 March 35 puts for a cost of $2,150
Given that Scenario-3 is a 40% probability (and any of the range 30/share to 39/share) then that's a calculated risk to even come out with the maximum loss, anyway...
I read that the majority ANALyst opinions are for the approval of Erbitux - fwiw.
Again, I'm just doing thought exercises here and the short-time spread (short March and long May) is something that I'm going to plot on a spreadsheet. Thanks.
It's a put backspread with no upside profit, so I don't consider it a good trade. A put backspread with profit on both sides can be accomplished (much more simply) with all puts:
-10 MAR 50 P
+20 MAR 40 P
This trade centers the maximum loss (-$7800) at 40, near the current stock price. Upside profit kicks in above 47.80 and caps off at $2100. Downside profit kicks in below 32.06 and keeps rising until stock is zero.
You would obviously want the stock to move a great deal from its current level.
wee
-10 MAR 50 P
+20 MAR 40 P
This trade centers the maximum loss (-$7800) at 40, near the current stock price. Upside profit kicks in above 47.80 and caps off at $2100. Downside profit kicks in below 32.06 and keeps rising until stock is zero.
You would obviously want the stock to move a great deal from its current level.
wee
What about a put and call vertical spread at the same time?
five point verticals up and down:
+10 MAR 40 C
-10 MAR 45 C
+10 MAR 40 P
-10 MAR 35 P
max profit $950 on either side;
max loss about $4000 @ 40;
loss zone is 35.92 to 44.03
ten point verticals:
+10 MAR 40 C
-10 MAR 50 C
+10 MAR 40 P
-10 MAR 30 P
raise the max profit to $3300 up and down;
max loss $6690 @ 40;
loss zone is 33.30 to 46.68
wee
+10 MAR 40 C
-10 MAR 45 C
+10 MAR 40 P
-10 MAR 35 P
max profit $950 on either side;
max loss about $4000 @ 40;
loss zone is 35.92 to 44.03
ten point verticals:
+10 MAR 40 C
-10 MAR 50 C
+10 MAR 40 P
-10 MAR 30 P
raise the max profit to $3300 up and down;
max loss $6690 @ 40;
loss zone is 33.30 to 46.68
wee
I like the -10 March 50P +20 March 40 a lot. Thanks for sharing.
Scratch my previous post - it SUCKS.
I played around with the covered calls, long puts risk/reward in my head and it SUCKS! Covered-calls really suck in a volatile environment. The position has a similar risk-reward profile of Long 10 March 30 puts without ALL of the TROUBLES.
{Long 21%}
Scratch my previous post - it SUCKS.
I played around with the covered calls, long puts risk/reward in my head and it SUCKS! Covered-calls really suck in a volatile environment. The position has a similar risk-reward profile of Long 10 March 30 puts without ALL of the TROUBLES.
{Long 21%}
Quote from weewilly:
To profit on that backspread, you willl need IMCL to move 20% of its value up or down in 37 days.
Good luck. You'll need it.
wee
I'm only approved for Level 2 options trading, so spreads are not an "option" (pun intended) for me
I think a 20% movement on the shareprice is doable because of the nature of the catalyst. On the downside, there is no question on my mind. The downside is a little tough as an approval is already priced-in to the stock (with current market cap of over $3B for IMCL).