$BCRX PDUFA options strategy

This is quite the interesting PDUFA for $BCRX.  Rumor has it that the NDA was filed using a multitude of clinical study results for peramivir yet excludes a Phase 3 study that actually failed to meet the primary endpoint designed in the study and was terminated early due to futility.  See reference link.  Interestingly enough, the company met with the FDA and reached an agreement for all requirements for a complete NDA submission.  See reference link Here. 

The NDA was filed and subsequently accepted for review with a target PDUFA date of DEC 23 2014.  NDA acceptance PR. 

Shortly after acceptance, the contract manufacturer for peramivir was issued a 483 from the FDA for deficiencies in drug product manufacturing practices.  See Reference link Here. 

So here are some potential hiccups for the FDA approval of peramivir.

1)  The data submitted for the NDA is a hodgepodge of clinical trial results and excludes the “FAILED” Phase 3 results.

2)  The contract manufacturer for peramivir was issued a 483 which will likely lead to a CRL on manufacturing issues.

Bulls in the stock will claim that it’s already received approval in Japan and Korea and that approval in the US is a guarantee.  True, peramivir was approved in Japan for use Jan 2010.  See Reference link.

But why has it taken an additional 4 years to get to the point for approval in the US?  The immediate answer is merely a month away.  I predict the FDA will issue a CRL and investors should prepare themselves for this delay.

Trade Strategy.

Currently Shares of $BCRX are trading near a $10 support level.

bcrx

We are about 4 weeks away from approval and I project with the upcoming flu season and speculation of approval that shares will rise in price into this event.  There is a chance that we can put on a risk free trade with a bearish sentiment.

First sell the $10 DEC 20th puts for a credit of ~0.80c.  Current midpoint is 0.83c.  As shares rise over the next few weeks buy the JAN $8 or $9 PUTS for less than 0.80c (debit).  At the same time we would then sell the JAN $12 calls for a credit of $1.20 to $1.50. and the JAN $13 calls for a credit $0.50c ($2 total credit)

This puts us in a diagonal calendar put spread at no cost with a $2 risk.  However, we sold the JAN $12 and $13 calls for $2 credit against this position.

If the approval is announced on the PDUFA date of DEC 23rd, this will be “after” DEC options expiration.  It is suspected that price will be above $10 and the DEC $10 puts sold will expire worthless allowing us to collect an 0.80c credit.  At this point we have the option to either close out the $12 and $13 JAN calls or hold the entire position in anticipation of a CRL.  Collecting $2 credit for the calls and the remaining premium of the $8 put options previously purchased.

The risk in this trade is if the CRL is issued before DEC options expiration.  The DEC $10 puts sold would be capped for a maximum loss of $2 because we purchased the $8 JAN puts.  In fact there will probably still be extrinsic value on the JAN $8 puts and so the loss may be slightly less than $2.  But, we also sold the JAN $12 and $13 calls for a credit of $2 which would bring the trade to flat or no loss.

Even if BCRX received approval this Intravenous drug will likely be second place to tamiflu and I can’t see shares of BCRX holding over $12 per share.  The likelihood of BCRX over $12 is low probability in my opinion.

Cash, cash equivalents and investments totaled $127.6 million at September 30, 2014
The net loss for the third quarter of 2014 was $8.7 million
Market Cap = An alarming $720.8MBCRX NOV 6 Earnings Statement

 

$KERX PDUFA options strategy

A very big day is coming in the near term with $KERX (Keryx Biopharmaceuticals).  The PDUFA for Zenerex.  I am leaning towards approval for Zenerex but I think the approval is currently baked into the price of the stock.

That being said, I think there is a good opportunity to make money with this event.  Let’s start by evaluating the chart.  Currently KERX is pushing to new 52 week highs before this event.   The $18 level is particularly of interest here as the price just recently passed through this level.  We also have short term support around $16.50 to $17 ish.  I am planning to sell the $20 SEP calls naked fora credit of $1.00 to $1.05.  I expect KERX will immediately fade upon approval and the $20 calls will get crushed.

KERX_strategy2

 

Trading Rules

Due to an overwhelming request for my trading rules, I figured I would just post them up here for an easy to reference spot.

1)       Never short a dull market.

  • Historically, the biggest bull runs in the market have been on exceptionally low volume.  If the market has had low volume, don’t short.

 

2)       Risk is more important than reward.

  • Never enter a trade without understanding the risk.  See pic below.  Need I say more?

risk

3)       Trading is a Marathon, not a race.

  • How do you eat an elephant?  One bite at a time.  Big accounts are grown very slowly.  Consistent small gains allow you to increase your portfolio at a healthy rate.
  • Trying to hit home runs results in a bunch of strike outs.  However, getting on base 10 times in a row will score you a run, eventually and consistently.  Less stress.

 

4)       Never trade with your emotions.  Use a system and follow your rules.

  • Trading with your emotions leads to failure because you fail to establish stop loss points and you start throwing bad money at good money.
  • In fact, technical signals are what we use to capitalize on emotions of other traders.  If you fall victim to the trap yourself then others who are better at following technical signals are profiting from your emotional stupidity.

 

5)       You missed the entry, your order didn’t fill.  MOVE ON.

  • Don’t try to chase the stock or worse, watch the stock while it explodes in front of you when you knew the entry was perfect but your order just didn’t get filled.   This type of action just plays with your emotions.  Remember emotional turmoil is what leads to bad trades.  Rule #4.
  • When trading options it’s extremely important to utilize limit order fills.  The spread is exactly what you are trying to take advantage of.  Hitting a market order on options immediately results in a loss.

 

6)       VOLUME always precedes price.

  • Volume is the second most important indicator to watch in the market.  #1 is “price” for the obvious reasons.  But volume helps predict an upcoming move.  Stocks do not rise in price unless demand exceeds supply.  Vice Versa, Stocks do not fall in price unless supply exceeds demand.  Volume is a direct measurement of supply and demand.  Indirectly, the direction of the price with volume, a trader can predict whether the volume is an increase in supply or an increase in demand.
  • When trading, try to take positions where volume is above average.  I prefer to target 50% above average volume.

 

7)       NEVER average down a position or add to losing positions!

  • In my trading career of 10 years I have done this countless times.  Oh man, this stock is even cheaper… It can’t go any lower.  Buy some more…..as the stock continues to cascade against you.  If you have a bad entry you take your spanking like you deserve with your stop loss order.
  • Many historical examples of losers becoming even bigger losers exist.  Dip buying 7 of 10 times results in a loss.  I have kept a journal for two years.  76% of my bad trades came from trying to buy into weakness.

 

8)       If you do not have a stop loss, do not take the trade.

  • Plain and simple.  This rule is in place to preserve existing capital.  There will always be losers and winners.  The key is to keep the losers very small.

 

9)       No setup = No Trade

  • Simple.  You are following rules to a system.  Why else would you create these rules?

 

10)   Trade a system that you know and that is successful for YOU!

  • Flipping back and forth from catalyst plays, earnings, day trading, options gambles etc. will only cause you more and more headaches.  Trade a system that works for YOU.  Every trader has a different strategy.  Eliminate the noise of other traders and stick to what you know best.

 

11)   Make sure you are held accountable for your trades.

  • Holding yourself accountable is extremely important for successful trading.  Ignoring your mistakes is not holding oneself accountable.  It’s like playing golf by yourself, if you continue to take mulligans off the tee box your score card doesn’t reflect the actual game play.
  • Many traders ignore their losses.  They are painful and don’t want to be remembered.  Which in reality; is opposite thinking.  Remember Rule #2?  Risk is more important than reward.  You need to understand how to eliminate risk entirely.  By learning from your losses you can develop a strategy that will hold you accountable for losing trades.
  • To hold myself accountable, I provide a list of profit and loss to my wife every month.  She scans through the account for the losers.  If she sees a big one, she asks what I did.  Most times, it’s pretty obvious. I usually broke one of the above rules.

 

12)   MENTAL capital trumps real capital.

  • Capital has two forms.  Mental and Real.  Trading when our mental capital is diminished leads to more and more errors.  Increased position sizes to make money back, ignoring risk, averaging down, chasing news.  All results of mental capital problems.
  • Build a system that keeps your mental capital preserved.  If you can’t handle big losses, take small position sizes.  If you get fearful when you miss the boat because a stock just took off, then take that stock off your watchlist.  You need to trade systematically.  There is always another trade out there with better risk to reward.

New 5K position $NEPT

NEPT_OI

Today there was some very unusual options activity on $NEPT.  9500 FEB $4 calls were purchased.  We will have to wait and see tomorrow if the Open Interest goes down or up based on that transaction.  However, there is an upcoming catalyst for $ACST.  $ACST is a spin off company from $NEPT.  $NEPT owns 50% of $ACST and they are in the business of Krill Oil Omega-3.  With AMRN recent blunder ACST might have the edge here.  Nevertheless, it’s possible that ACST might be releasing data before the FEB expiration.

ACST had guided they expect to release Phase 2 results 1H 2014.  In addition, there is a rumor that they are expecting to reopen a plant that had an explosion November 8 2012.  With these two pending news items and unusual option activity I took the chance and bought 60 $2.50 FEB calls in the money at $1.05.    I’m targeting a $4.00 price break where I will close out the trade.  If the news doesn’t come or the action looks weak I will close out the trade.  Additionally, if the open interest in the $4 FEB calls decreases tomorrow I might just close out the position for a flat trade or maybe a small profit.

Outlay = 60 x $1.05 x 100 = $6300 + commissions

NEPT does have a few good things going for it though,  upcoming catalysts and the chart looks great for a breakout.

nept

5K_01-23

Account balance $10,428.55 (+109%)

5K Update 21 JAN 14 (+89%)

Just an update in the 5K challenge.  I closed out a short position in GALE today for a total of +$1394 gains.  I covered the 1K short shares at $5.65 which was quite good (pat myself on the back).  In the process I was trying to write puts to give myself a free trade into OPEX.  In the process, I wrote the wrong strike and I got upset and just closed the trade.  I was intending to write the $5 Feb PUTS and ended up clicking the $5.50 PUTS.  The stock was in a flash crash and I was rushing to get the order in place.   I was so upset with myself that on the bounce I just closed out the PUT spread for a +$79 profit.  Emotional trade, I know.  It happens occasionally.  Need to be more like a robot.

gale

5K_01-21

 

My next trade idea will be coming soon.  The bio market is red hot and I am trying to sit on my hands this week.  Let the trades develop and not rush into any new ones.  I see tons of overbought stocks.  I would like to short them but some still have great momentum carrying them.  The setup has to be there.

Account value stands at $9452.43 (+$4452.43 +89% ROI)

1/20/14 Update

Took a pretty big hit on AMRN Jan $2 calls last week.  I, along with many AMRN folks, did not see the double delay. My 5k game plan was simple; load up on AMRN Jan 2 calls knowing I will either lose premium if negative outcome OR have a multiplier if positive outcome. I am still bullish on AMRN spa. The FDA would have issued a CRL at this point. Anyways, there are so many blogs on the AMRN debacle so I’ll save my breath. I sold the calls for more than 50% loss.

Net loss of $2000 on the AMRN play.

Total Account after AMRN: $3200

My next play is a non-biotech, PLUG. I have purchased 150 Feb $6 calls for .10 ($1500 outlay). The chart looks hot and the retail hopium is off the charts. I am looking at a price target for sell trigger of 4.75-5.25

plug

I will be watching closely so as to preserve value and not let Theta degrade this play. If it doesn’t move this week, I will exit.

5k

 

ARIA momentum trade

Tried a trade today in ARIA and this just faded quick right after entry.  Very disappointing.  I cut the trade as quickly as I could.  The momentum and volume looked like it was there and then all of a sudden nobody was bidding up the stock and I just took the loss.

Here is what I was seeing in the trade.   Broke through that 6.75 level and I bought ITM $5.50 calls at $1.29.  Chased it a hair because the volume was there.  I bought right on the exact break of that trendline.  It continued higher and I was green in the options and then 4 candles later…. WOOSH a massive sell came in on the stock and killed the momentum.  At that point it was damage control and I exited as quickly as I could.

aria

aria

-$367 loss.

 

Account balance today stands at $8085.20 (+$3085.20 +61.7% ROI)

5K_01-16

GALE Short Entry

Entered GALE short with 40 $7 APR PUTS at $1.75 on ridiculous market cap evaluation.  $800M Market cap for a company that currently sells one product called Abstral that brought in a whopping $1.3M in revenue for the Quarter ending Sept 30, 2013.  The company has approximately $55M in cash and equivalents and expects to have funding through 2015.

So, Neuvax is currently in Phase 3 trials and is not expected to be complete with patient enrollment until 2017.  By comparable standards, most cancer drug companies trade at market caps of $200-$300M for a one cancer drug company.  So, the market is pricing ABSTRAL at $500M?  Are you serious?

Continual price upgrade after price upgrade by Roth.  Maxim Upgraded GALE as well.  This is just beginning to look like an epic pump and dump in my opinion.  Needless to say, from a technical standpoint the price was WAY overbought and I shorted the open with puts when it failed to bounce off yesterdays high.  It broke down immediately and the selling was coming in pretty good.  I covered half the next day to reduce exposure primarily because the short interest is too high and the risk of squeeze is definitely in the back of my mind.

gale

Today, Jan 16, Jim Cramer announced that he’s having the CEO of GALE on Mad Money.  That new alone sent retail longs into a panic frenzy of buying the stock back.  I exited the second half flat.

gale

Trade has been closed.  +$471 profit