Quick Note – ARNA Redux

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.

hh