Whipsaw World

In a few minutes the CEO of Human Genome Sciences (HGSI) will be on CNBC.

In the “good old days” that would be worth a half a point bump up in price.  But an FDA positive recommendation from the review panel on a drug for a disease with no effective treatment usually is good for several points at least.  Today the stock already traded down by more than 10% at its low.

To me, with my short strangle in November options, I got out of the options positions profitably (in every position), though not with perfect timing.  I also legged into a short $25 straddle for December, again with less than optimal timing.

Still, with over $4 per share in option premium taken in, with the really big binary question (mostly) answered, and the stock seeming to stabilize between $25 and $26, the volatility sale still makes sense.  As before, I am biased long, with holdings in the underlying stock, and a ratio straddle on in the options.

Between last night’s after hours optimism that took the stock up to $28 to $29, and today’s premarket short seller onslaught that took it down below $22, it does look like the stock will stabilize and these options premiums will decay away nicely.  The liquidated November options positions gave me over $5 per share in profits vs. my long stock position, so when I add in the $4+ in December option premiums, I can now look at this whole adventure as being profitable anywhere from $15 to $35 per share, and resolved in just 30 days.



One Response to Whipsaw World

  1. hhill51 says:

    Too bad it doesn’t work perfectly opposite all the time. Since the CEO was on Market Hype TV (Fox Lite), the stock has fallen a buck. After hours and pre-market told me the fix was in place, but I can’t say this will be reliable trading strategy, doing the opposite of what the fundamental news would suggest.

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