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How to Play AGIX BMRN Part-2

Published on February 17, 2007

How to Play AGIX BMRN Part-2

February 17, 2007

Here is an update on the AGIX. To refersh, we discussed in the earlier trade the reason why there is so much buzz about these two tickers is due to pending FDA announcement. These are highly volatile and I expect volatility to either rise or remain flat till the announcement. The key question is how do benefit from this event. Attached below are two charts, one representing IV over past 3 months and another one is a backspread example.
screenhunter_26.jpgagix-trade-idea-1.png 

In this particular back spread example, breakeven points are $7.8 and $15.4 i.e. AGIX either has to drop over nearly 40% to start making money or gain more then 30% to make money (by March expiration). If AGIX rises about $20, one can easily double his investment but if drop below $7.4, the maximum gain is $310 on $2190 investment. No matter it drops to whatever level. However, if it remains in between these breakevens, then one will lose money, maximum loss $2190 (i.e. all investment if stock remains at $10), depending upon the stock price at expiration.

So here are key questions that we need to address as we are developing our trade ideas:

  • When is the exact announcement date?
  • What is the minimum % change is expected after announcement?

We will cover that in the next part, till then, Profitable trading,
OptionPundit

6 Comments

  • Avatar Simon says:

    OP – Why would play this unless u were bullish. If the stock goes up you will lose money and IV will fall increasing the problem!

  • Avatar chiu says:

    For the AGIX, as the stock price is at $11, will you consider buying the stock instead ?

  • Avatar OptionPundit says:

    Simon, I have a neutral bias and therefore if you watch the trade carefully, you’ll notice this trade will make money either way BUT only if the stock moves and it should move big time. IV has been taken into consideration already. My KCI and AVNR experience tells me 50% movement is not a big deal. It happens for pharma companies. Will this happen in this case, not necessary.

    Dear Chiu, I may or may not consider buying stocks. I shall be reviewing more ideas and see if there is any perticular trade where it makes sense. BTW, if I buy stocks, I am purely being Bullish and if I am bullish for sure then I may take advantage of high IV as well.

  • Avatar Optrader says:

    OP,

    What about that: buy 5 Jul $35’s and sell 100 Mar $50’s. Do people really believe this stock could quadruple in the next month?

  • Avatar GoldOp says:

    sell 100 Mar calls naked against 5 July?.? What are you thinking.

  • […] We discussed AGIX quite extensively (here and there) and then due to other opportunities in the market I temporarily discontinued discussing this ticker. Here is a snapshot from April Options chain and I am just wowed ! Implied volatilities, talk about 100s or 200s, sorry… It’s in 500s!! Olrite…Open interests, 5K, 10K, sorry it’s in 20s,30s and more and almost on every strike point. Even as far as $40. […]

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