Sites such as BiomedReports and Mike Havrilla will provide you with a very complete FDA calendar... for a fee! For many investors this is overkill. I never paid for an FDA calendar but instead I use the free resources below:
Biorunup Free FDA calendar: My favorite calendar. It is well maintained and updated often. It is also very exhaustive.
Favstocks Free FDA calendar: This calendar is community maintained, meaning that errors can get in and that information can get out of date. It is still a good source of information if you do your Due Diligence and double check the information provided. Note that you will have to post in the Favstocks forums to gain access to the calendar.
Gekkowire: This site also maintains an FDA calendar for the most important FDA approvals. The calendar is well maintained but does not include all the FDA catalysts.
There are of course other online resources, but these three free FDA calendars are the ones I use.
Thursday, September 9, 2010
Strategy: sell a covered call on a stock with an upcoming FDA approval
I am thinking of implementing a new trading strategy: since options are very expensive if the expiry is after the approval (since there is huge implied volatility) I am thinking of buying a stock with an upcoming FDA approval and selling an Out Of The Money call option. That way:
- If there are delays or something goes wrong during the run-up I have the premium to fall back on to cushion losses.
- If we have a nice run-up the option I sold will go up in price, but my stock will go in price more since delta is quite far from 1 in Out Of The Money options, so selling both will still deliver a profit.
- If I hold through the decision my upside is a bit limited, but again the premium cushion me in case of rejection.
An example I am trading now (09-09-2010):
Buy Avanir Pharmaceuticals (AVNR) now for $2.70 and sell a Dec. $5 call for $0.55.
- If no run-up happens comes the 30th of October or the approval is delayed you can probably re-purchase the option for much less than you sold it for (or let it expire worthless in case of delay) and still make some money that way.
- If the stock runs up to $5 the option will probably only go to $1.30 or something like that. You re-purchase your option (on which you lose $0.80) but you sell the stock @ $5.00 for a $2.30 profit, which mean that you "net" about $1.50.
- If you hold trough the decision and it is positive you maximum gain is $2.30 + the price of the option ($0.55) if you let it expire In The Money or a little bit less if you repurchase and sell the stock. This is "only" about a 100% upside!
In case the decision is negative however and the price falls to $2.00 you only lose $0.15 since the $0.55 from the premium cushion you.
Note that this example is for illustration purposes only (not trade advice).
- If there are delays or something goes wrong during the run-up I have the premium to fall back on to cushion losses.
- If we have a nice run-up the option I sold will go up in price, but my stock will go in price more since delta is quite far from 1 in Out Of The Money options, so selling both will still deliver a profit.
- If I hold through the decision my upside is a bit limited, but again the premium cushion me in case of rejection.
An example I am trading now (09-09-2010):
Buy Avanir Pharmaceuticals (AVNR) now for $2.70 and sell a Dec. $5 call for $0.55.
- If no run-up happens comes the 30th of October or the approval is delayed you can probably re-purchase the option for much less than you sold it for (or let it expire worthless in case of delay) and still make some money that way.
- If the stock runs up to $5 the option will probably only go to $1.30 or something like that. You re-purchase your option (on which you lose $0.80) but you sell the stock @ $5.00 for a $2.30 profit, which mean that you "net" about $1.50.
- If you hold trough the decision and it is positive you maximum gain is $2.30 + the price of the option ($0.55) if you let it expire In The Money or a little bit less if you repurchase and sell the stock. This is "only" about a 100% upside!
In case the decision is negative however and the price falls to $2.00 you only lose $0.15 since the $0.55 from the premium cushion you.
Note that this example is for illustration purposes only (not trade advice).
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