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.
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
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