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Post by harshal1981 on Apr 22, 2014 11:13:57 GMT -5
What do you guys think about July 19th Call option at Strike price of $10 with $0.45 premium? I was thinking of buying contracts considering PDUFA is July 15th and I am strongly of the opinion that it will for sure put price above $14.
Option Gurus, please dive in. This will be really first time I will be playing with options.
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Post by mrhaigs on Apr 22, 2014 12:21:18 GMT -5
I wouldn't do it. Id play a call spread instead. I have 6/9$ call spreads for August and debating some 7/8 and/or 8/9$ July call spreads. Risk reward is pretty nice.
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Post by ashiwi on Apr 22, 2014 12:37:24 GMT -5
July 10 calls are very risky. Even with approval, if stock only goes to $ 10. You still lose it all. I believe the bigger pop will be with partner. I would go out another month. I bought a few august 8 calls. The bulk of my position is still in good old fashioned shares. As a rule I generally make more $ selling calls and puts.
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Post by babaoriley on Apr 22, 2014 12:42:34 GMT -5
Gosh, don't take this the wrong way, harshal, but I'd be a seller of those calls before being a buyer. Completely agree with ashiwi, very risky business. Like mrhaigs spread better.
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Post by harshal1981 on Apr 22, 2014 12:51:15 GMT -5
I wouldn't do it. Id play a call spread instead. I have 6/9$ call spreads for August and debating some 7/8 and/or 8/9$ July call spreads. Risk reward is pretty nice. MrHaigs: Request you to elaborate a little. You seem options pro. I am just beginning. Appreciate your time. Thanks, H
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Post by harshal1981 on Apr 22, 2014 12:59:05 GMT -5
July 10 calls are very risky. Even with approval, if stock only goes to $ 10. You still lose it all. I believe the bigger pop will be with partner. I would go out another month. I bought a few august 8 calls. The bulk of my position is still in good old fashioned shares. As a rule I generally make more $ selling calls and puts. Baba, Ashwi: Even with AdCom it reached $9 after-hours. Do we not expect to go at lest $12? Even with $12 this is $1.5 profit per share? I am sure I must sound stupid to you guys. But just starting to get in to options. If you can take few minutes to educate me, would greatly appreciate.
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Post by babaoriley on Apr 22, 2014 13:17:27 GMT -5
It's a fairly uncomplicated process to learn, but here's the deal, buy a short book called Covered Calls and Naked Puts by Ronald Greinke, this will tell you learn what it's all about.
IMO, we will not run up much on mere approval, as much of that is already priced in based on the AdCom. It's the partnership that will propel us, assuming it doesn't sound like we got taken to the cleaners (which the short bloggers will surely claim). So if you think the partnership will be announced by the time your option expires, might be worth a bet. But mere approval? I'm willing to bet Spiro, rak and ashiwi's money that you'd be a loser with the calls you describe, if all we get between now and expiry is approval.
Another key thing you need to understand is implied volatility. Let me give you an example, some high flyer is about to announce earnings, the stock's at $100 right before release so you think, aha, I will buy next months $110 call options, and if earnings are better than expected I will cash in! Well those options may cost you $6; earnings come out and are good, first thing next morning stock runs up from $100 to $113, you figure you're a genius - you look at the price for your option and find that it's now $5!! You're a loser and can't figure out why. It's cause the speculation in the price of the stock just got sucked out by the release of the earnings.
Real life example, take a look at the April options for NFLX; they are up about $20 on better than expected earnings news; look at what happened to the price of some of the call options which are in the $355 to $380 strike area. One might think they'd be way up, surprise!
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Post by ezrasfund on Apr 22, 2014 13:51:36 GMT -5
Another way to think about options is in terms of the "premium" you pay when you buy them. As we get closer to the options expiration date that premium "decays", that is it gets closer to zero, which is what it always is at expiration. Far out of the money calls have a high premium; deep in the money calls can often have a low premium. Long dated calls have a higher premium, short dated calls a lower premium. Overlaid on this is implied volatility; a more stable stock price and the lack of upcoming events (like PDUFA or earnings announcements) means lower premiums.
In your example (where you use the term "premium" when you really mean "price" for the July 14 $10 call with a price of $0.45, assuming today's price for MNKD is $6.45 the premium is really $4.00, as the price of MNKD would have to rise $4 to $10.45 for you to break even.
With MNKD I have generally lost money on long dated far out of the money calls as events were delayed, but made money on short dated deep in the money calls bought when the stock dipped.
Right now I hold Jan 15 $3, $5, and $12 calls. The Jan 15 $12 calls were bought in the days of irrational exuberance, and are the ones I will sell first.
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Post by alcc on Apr 22, 2014 14:05:50 GMT -5
Agree timing-wise July is too close. Personally I am not sure we would see the full run before partnership. Adhering to your investment thesis, seems to me a better play would be to do a $10-$15 long spread on the Jan '15C. Today, you would pay a net premium of ~$0.60 for a max gain of $5, which is similar to your ~$0.45 premium for an expected net gain of $4. But you get the benefit of time. In my experience with options, I have often been right about the price movement but wrong about the timing.
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Post by mrhaigs on Apr 22, 2014 15:35:28 GMT -5
The two that I've mentioned are both bill call spreads. You buy a number of calls at a lower strike and sell the same number of calls at a higher strike. You limit your gains in this fashion, but don't have to shell out as much to buy your lower strike call option. Eg). Let's say July 7$ calls trade for $1.25 and July 8$ calls trade for .95$. Let's use a round number of 10 spreads you want to open. You buy 10 July 7$ calls for 1.25 each and sell 10 8$ calls for .95$ making the total debit to your account .30$ per spread. If you're setting up 10 of them, this would equate to 300$ max loss with a 700$ max gain (of thhe stock trades at or north of 8$ at time of expiration).
If you want to engage the trade a little further you can always buy back the 8$ calls that you have previously sold. I like to do this if there are any large downswings in price. You can buy them back for cheaper while booking a profit, and now your 7$ calls remain uncapped should the share price really take off. 90% of all trades I make, mnkd and otherwise, are options related.
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Post by mnkdfan on Apr 22, 2014 19:53:41 GMT -5
I am not an option expert neither but would like to know what you all think about a long term investment strategy by buying the $10.00 strike call, out 1/2016 for around $2.00/share vs. buying shares. One would get the leverage in shares with the options and for goodness sake with at least 3-4 quarters of sales under your belt and the if uptake is as good as I predict, it's hard for me to not see the share price in the $15-20 range by 11/2015.
Would this approach be more desirable to maximize your gains if you're bullish on the company future?
Your opinions are much appreciated.
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Post by babaoriley on Apr 22, 2014 23:09:49 GMT -5
"Would this approach be more desirable to maximize your gains if you're bullish on the company future?"
I think so, fan, just add, "if you're right." LOL! If we get quick approval, a quick partnership and sales begin, and a strong buzz starts among users, by January 2016, I could see us more in the $25-$30 range. All would be lookin' really good. You might consider funding a portion of your purchase of the Jan 2016 calls, whether they be 10's or a little lower, with the sale of some Jan 2015 $12's or whatever is the highest strike price you can get up to say, $20. Also, you don't need to make that sale at the same time, you can wait for a spike in the price upon partnership, then sell the appropriate Jan 2015 call.
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Post by mnkdfan on Apr 22, 2014 23:48:34 GMT -5
Thank you for your response Baba. I have not fully grasp the selling of options as a strategy. So if I sold Jan 15, $12.00 for .53c and buy the $10.00 , 1/2016 for 1.90. Say the stock price goes to $8.45 (change of $2.00 from the current price), what do you think those option prices will be?
Are you suggesting collecting the .53c for selling the options as a hedge if the stock price drop? Or a hedge as the increase in value for being further out of the money at $12.00 will be less than the gains at $10.00?
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Post by babaoriley on Apr 23, 2014 0:05:38 GMT -5
Well, you're partially funding your purchase, so that's good. And, if the shares remain under $12 by expiry of Jan 2015 options, then you have your Jan 16 free and clear, and saved yourself .53. Of course, if the stock skyrockets to $15 or more before Jan 2015 expiry, then that's not good, will eat a lot your profits.
As to your question, I have to know a date and I have to know what caused it to move to $8.45. I'll assume on July 1, the stock goes to $8.45, and I will assume that's based purely on FDA approval (no partnership). I'd say the 2015 12's would be about .70, and the 2016 10's would be about $2.50. If the $8.45 is based on approval and a partnership, the 2015 12's might be around .30, and the 2016 $10's might still be about $2.50. Real WAGuesses!
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Post by mnkdfan on Apr 23, 2014 0:31:19 GMT -5
I see your logic and it's very intriguing. Is this why you had mentioned earlier about waiting for the price to spike and then sell the higher strike price when it becomes available? The goal obviously is to collect the premium in full upon expiration with the stock price below the strike price.
Because I am very bullish, I will take your advice of post FDA/partnership and review the highest price out of the money strike to consider selling options.
Thanks again Baba!
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