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Credit Spread HOLX : Profit 17.24%

Published on January 31, 2007

Credit Spread HOLX : Profit 17.24%

January 31, 2007

Credit spreads- Love it or hate it!

Congratulations to all those who witnessed HOLX’s conference call and saw the huge jump in the stock price as the call was going on. Since it was in my list, but I didn’t play earning, I decided to participate as soon as the volume picked up. As I don’t play without hedge, my play was a bull put credit spread. I am already out from the trade after a kool 17.24% return in few hrs. ($0.50 on $2.90 per contract).

Here are the charts and my transaction reports: 

HOLX-1    Holx-2

4 Comments

  • Avatar jayzee says:

    Hey OP,

    Let me first say what a fantastic site!! Its great to see real world trades as they happen. The education is priceless!

    Can you add a post on how you find candidates for different strategies. I understand strategies well, ie why one would use them, when, how etc but finding stocks is the tough bit. Also some light on entry and exit rules would be great.

    Cheers

    J

  • Avatar optionpundit says:

    Hi Jayzee,

    Thank you for the kind words.

    As I continue to post and share various option trading strategies, I will share my way of finding the candidates as well. In nutshell though, it is very much dependent on what kind of outlook I have about certain underlying or market.

    For instance, If I am looking for income generation, I don’t want to take too much of risk and hence less volatile. Less volatility means, less premium as well. So it’s a balance that one needs to strike. I shall continue to mention in my post on what basis I select something.

    Profitable trading,
    OptionPundit

  • Avatar hmatar says:

    hello OP

    AGIX is a very speculative play…price is 11-12, april 12 calls 4-5,
    so a handsome premium but, but, I was succered before in AVNR, so
    any plays suggested on this one…

    thank you and great site

  • Avatar optionpundit says:

    Here is the news that is driving the volatility so high….need to find a bit more about the date so we can play at the right time…

    Pharmaceuticals
    Biotech’s Big Long Shot
    Matthew Herper, 01.10.07, 10:45 AM ET

    AtheroGenics has the drug industry on tenterhooks waiting to know whether the tiny, Atlanta-based firm’s drug will be the biggest pill to hit in years or yet another pharmaceutical failure.

    Shares in the tiny company, which lost $47 million in the first nine months of 2006, surged 25% on six times average volume Friday as investors, stringing together rumors, tried to place bets on a big study of the company’s experimental heart pill, AGI-1067. AtheroGenics, they figured, had probably already submitted data to a big cardiology meeting that will be held in March, and Chief Executive Russell Medford is presenting Wednesday afternoon at an investor conference in San Francisco.

    But there is no data expected at today’s presentation; AtheroGenics said Tuesday that the big study, which will test to see if the drug cut heart attacks, strokes and heart procedures in 6,000 patients, won’t arrive until later in the quarter, closer to the big scientific meeting held by the American College of Cardiology. Shares promptly dropped 10%.

    In fact, there has been no new data on AGI-1067, the main drug AtheroGenics is developing, since September 2004. During that time, the company’s market value bounced up and down from well over $1 billion to a current $400 million.

    Really, there is very little known about AGI-1067, even though drug giant AstraZeneca has pledged as much as $1 billion to get rights to co-market it. The studies conducted by AtheroGenics give only vague clues as to whether AGI-1067 will work. But if it does prove effective in preventing heart attacks, the potential is vast, easily topping the many billions of dollars. Heart disease and strokes kill 900,000 Americans a year.

    Right now, cholesterol-lowering drugs like Lipitor from Pfizer, Vytorin from Merck and Schering-Plough, or Crestor from AstraZeneca are the biggest thing going in the drug business. They brought in $32 billion in 2005–nearly four times Hollywood’s box-office take. But these drugs cut the risk of heart attack by perhaps half. If another pill, added on top of them, could do better, it would be a surefire best seller. Pfizer was going after this market with torcetrapib, its failed drug to raise good cholesterol, that cost more than $800 million to develop.

    AGI-1067 takes a different approach. In 1990, when he was an assistant professor of medicine at Emory University, Medford started looking for a new way to fight heart disease by short-circuiting the inflammatory response that causes cholesterol to stick to the arteries. He co-founded AtheroGenics to further the search in 1993.

    Medford and his chemists came up with the approach of modifying a cholesterol-lowering drug, probucol. Marion Merrill Dow, the drug’s maker, stopped selling probucol in the U.S. in 1995 because it lowered good cholesterol and caused potentially worrisome changes in the heart’s electrical rhythms, commercial disadvantages that made it a non-starter.

    But studies in Japan, where probucol remained on the market, and elsewhere seemed to indicate that it had heart-attack-preventing power that went beyond its ability to lower bad cholesterol. Since AGI-1067 looks a lot like probucol minus the side effects, these findings bolster its prospects.

    Unfortunately, AtheroGenics’ own studies of the pill have been muddy at best. A 2003 study codenamed CART-1 tested the drug as a way to prevent arteries from reclosing after they are propped open with a metal stent. The market for such a drug was already evaporating, thanks to the drug-coated stents developed by Johnson & Johnson and Boston Scientific. But the CART-1 seemed to show that there was less plaque in the region outside the stent.

    That hint of effectiveness was enough to lead AtheroGenics to start in 2003 the giant trial whose results investors are now anxiously waiting. AtheroGenics fumbled a second study, a follow-up to CART-1 called CART-2, which was presented in September 2004. AtheroGenics, seeing problems with the data, called in a second researcher to reanalyze the study. Scientists consider such a second-hand analysis untrustworthy. The original analysis showed no clear benefit from AGI-1067; the second one seemed to indicate that the drug worked. (See: “Gunfight at the Artery Wall.”)

    This is a surprisingly small amount of data for an important drug, but there is a slim possibility that the big 6,000-patient study could turn out positive findings. Partner AstraZeneca itself seems to be proceeding gingerly. So far, it has paid AtheroGenics only $50 million–it will pay the rest of the $1 billion it has pledged if clinical trial results are positive, the drug is approved and certain sales milestones are met. AtheroGenics says it negotiated the deal to keep as big a share of AGI-1067 as possible.

    Sanford C. Bernstein’s Gbola Amusa, who covers AstraZeneca, said in a note last year that there is only a 35% chance of success, but that expectations are even lower, so maybe investors should consider placing wary bets on the biotech. In a roundup of year-end predictions, Decision Resources predicted the drug would be approved. (So did I, a bit less enthusiastically.)

    Whatever happens, the news on whether AGI-1067 works will come suddenly. AtheroGenics’ Chief Financial Officer Mark Colonnese says the company will put out a press release as soon as the results are in. Another possibility, little discussed, is that the drug will show some evidence of benefit, but not enough to get it approved or to warrant big payments for AstraZeneca.

    “We know there’s high risk,” says Colonnese, “but there’s a high opportunity, and we’re prepared to move forward whatever the outcome is.”

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