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Posted on July 24, 2012, by bsifling, in Blog, Watch Lists, tagged
Good article and strategy.
How much of a dip do you think it might make if approved and after everyone is out before the investors move in? Below $7.50?
I would say yes, below 7.50.
So I had this same kind of issue with the P&L calculator on Options House when I was building a trade for VVUS. For some reason it just doesn’t do the calculations right. So what I was saying is there is no way this trade can be a win win. You are right now into the August $10 calls for a total of $249 +commissions and then have $600 + commissions into the August $5 Puts for a grand total of $849. The profit and loss calculator should be showing that as your max loss since if the stock closes between $5 and $10 you lose it all. Not sure why it is saying your max loss is walking away with $147.55 profit.
I see what you are saying now. I plan on selling the $10 calls upon approval that will be way closer to ITM. Therefore people will pay more for them (If the pop is under 10.) You forget that the options do not expire right away. Chances are people believe in the company and will want $10 calls.
In the event of a rejection, I expect it at 4 or lower, so I’m not worried on that.
Alright I gotcha, just wanted to make sure people weren’t looking at it as an arbitrage opportunity. As one of my favorite finance professors used to say, “There is no such thing as a free lunch.” Good luck.
Im doing a simlar strangle with AMRN. The problem is if there is a delay in the approval/denile you will be screwed which is what the calcultator does not take in to its profit/loss.If post poned the stock may drop some but not enough for your puts to come close to cover your postion and the calls if not within the new date will be trash. Of course this is part of the gamble we are taking with options. Ive made alot and lost alot on options. I wish you (and i) luck. I appreciate your web site.
Yes, I understand. But of course there will always be some risk in this game.
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