Overdue update

I have been working on a new project that has sucked up quite a lot of time over the last 3 weeks or so. It has restricted my ability to post but I wanted to write a note covering three trades that I made in the last week. I would prefer to have these noted closer to real time but I think it is worth writing something down anyway.

The most consistent trade that I have had recently has been the one i which I take a pessimistic view of a stock price’s potential immediately following an approval. I have analysed these events over a multi-year data set and have a high degree of confidence in the trade’s ability to return. I even wrote a couple of articles for SeekingAlpha detailing recent results with this trade. Here’s the first, and the second.

Last week I had another opportunity to try this out. VVUS received approval for its weight loss drug on Tuesday July 17th. The following day I took a long position in the July $30 puts. I bought the puts at $125 per contract. This was particularly risky given the short time to expiration but I had a strong conviction that the price gain ahead of the approval decision was not sustainable in the short term. As can be seen from this 2 hour chart, the stock gapped up on the day after approval but quickly started to loose ground. I sold my puts on Friday (I had to – the were about to expire) for an average price of $660. A 428% gain.

 

 

 

 

 

 

 

Yesterday the FDA announced two more approval decisions. HZNP had its RA drug approved. I had positions in HZNP a couple of times earlier this year – bought at $3.41 and sold at $4.10, bought at $4.07 and sold at ~$6.10. This is another stock that performed wildly successfully ahead of the launch so may have potential to fall back quite a bit in the next few days. I bought the $7.50 August puts for $105 first thing. The stock opened down from yesterday despite the good news. It continued to fall but in the later part of the day made up a good part of its drop. I am still holding all my puts.

 

 

 

 

 

 

 

 

Finally, AMRN also had a drug approved today. Also has seen some nice pre-approval action but its price has behaved even more bullishly than HZNP today. I bought the $14 puts for 120. 

 

 

 

 

 

 

 

 

So 3 new positions as of today. As with previous trades using this strategy I do not expect to hold them for more than 2 or 3 days. I am up on both of them already – 48% on HZNP and 54% on AMRN. I usually take smaller positions with option trades due to the leverage and potential for catastrophic loss. With the 3 trades detailed above my initial positions represented about 3% of the total portfolio value.

New old position

I have added IRWD to the portfolio. Previous thoughts on this stock can be found here. I really think that this might move ahead of its PDUFA date. If it can get past the FDA the company potentially has a huge, primary care drug on its hands. Not too many of them around any more. I bought it this afternoon at $13.56.

I owned this earlier in ’12 when I bought in at $14.40. IT went as high as $15.95 before shaking me out at my entry point. We’re about 2 months from the PDUFA date now (Sept. 9th) so with luck it will start to pick up steam.

 

 

Profit taking

I was very happy closing my HZNP position last week for a pretty nice 50% gain. I guess I should loosen up my stops and have a bit more faith in the power of pre-PDUFA enthusiasm. HZNP is up an additional 24% from my final sale point! I imagine it could keep on running into the PDUFA date but I will be watching from the sidelines. As they say, “buy right, hold tight”.

 

 

Streak continues

My portfolio closed above 200 for the 1st time today. Thus it is up ~100% since I started tracking it on this site 7 months ago. An average monthly growth of ~10% is implied – but as can be seen from the performance chart, the growth has been concentrated in certain months, particularly June.

Today’s gain is doe to another strong day for ACAD (up ~3%) and NAVB (up ~10%). I have a half position in NAVB and a full position in ACAD but am largely in cash.