The Number

May 31, 2012

Tomorrow, a monthly ritual will be played out for the investing and political classes.  It happens on the first Friday every month, and part of the ritual is endless discussion of what “the Number” means, politically and economically.

One such Friday a couple of years ago, I wrote some thoughts on the circus presented that morning on CNBC.  I didn’t put them on my blog because I thought they might be “too political.”

I was still thinking I might end up on Wall Street or with a major money manager at the time, so why take the risk of rubbing a key decision-maker the wrong way?

Now, I don’t care any more. It’s too important an issue for me to stay silent when the corporate Powers That Be (PTB) are gearing up to finish the job of screwing us that started several decades ago, and nearly finished in 2008. Read the rest of this entry »

Back into Dendreon

May 25, 2012

As I pointed out with Arena, my “playbook” for ARNA was that it could follow the path of Dendreon (DNDN).  Some of the same players seem to be involved, including even retail followers of clinical trial small pharmas.

Dendreon fell out of bed recently after its transition to treating patients.  The very high cost of the treatment led to predictably slow uptake, which naturally disappointed the most optimistic of its supporters, and gave the shorts another opening to jump on the stock.

Amazingly, this time I didn’t ride the roller-coaster down (in Dendreon, at least, but Human Genome Sciences made up for that).  It does, however, look like it has stabilized, so I dipped my toe in yesterday because the volatility is still beyond the stratosphere.

My play, hopefully good for 10% or so in just three weeks, was to buy the stock and sell June 7 calls.  If I’m correct in my chart-reading, the stock should be north of $7 three weeks from today, and it will be called away, leaving me with close to 70 cents of profit for each share.  I like it when my annualized profit amounts to over 100%.

While I’m at it, I added some more ARNA and sold January $5 calls against it.  While definitely still at risk to be denied approval at the end of June, my net cost for those shares that I hope will get called away was under $3.50 per share.  That would be a nifty 43% profit in eight months, or 64% annualized.


JPM Proves My Point

May 14, 2012

As I’ve been saying for years now, the hidden leverage of over-the-counter credit swap contracts is the real problem here.  And playing hide-and-seek with underfunded regulators is a huge part of the problem.

I was even thinking about putting together a cheap e-book explaining this (I still might do it).

Put into a quick analogy for the 99.99% of the world that finds financial alphabet soup to be like trying to see the bottom of the bowl of split pea soup, I shared this with a friend who asked what I thought about the London Whale:

I think describing our five largest banks as deposit-taking and lending businesses is like calling Las Vegas the buffet capital of the world.

The latest “surprise” coming from one of the most visible profit centers of one of the largest banks in the world just shows us that this risk simply can’t be managed when it is ultimately a risk to the taxpayer.  Either we stop guaranteeing banks (bad idea) or we make the banks pay into a resolution fund for the inevitable next blowup (good idea).

Read the rest of this entry »

ARNA Gets Positive FDA Panel Review

May 10, 2012

From Adam Feuerstein’s live blog.  Glad to see him admit he was wrong.

adam feuerstein:

wait to hear the individual votes

adam feuerstein:

FDA advisory panel votes to RECOMMEND approval of lorcaserin. that’s your headline for today

adam feuerstein:

18-4-1 voting in favor

adam feuerstein:

well done, ARNA. i was a big doubter and wrong on this one. they did a good job.

Quick Note – ARNA Redux

May 4, 2012

With two weeks left before expiration and the advisory committee meeting next week, the implied vol’s on the May series are going interstellar.

I just added yet another set of strangle contracts, selling pairs of $2 puts and $3.50 calls.  Net credit $1.20 per share.

Here’s how the economics work out:  The trade is pure profit if the stock closes between $2 and $3.50.  It breaks even at $0.80 on low side and $4.70 on the upside.

Since I have a ton of covered calls already written at the $4 and $5 strike in January (and also some $2.50’s in May), I have no problem taking the risk on this new position if the stock goes up past $5 a share in May, which would still be before the FDA formal approval meeting.

I can’t recall ever seeing options trade with nearly 500% implied volatility, but there it is.