Home >> Stock Forums >> DNDN FED approval (or not) May 15th

DNDN FED approval (or not) May 15th

roarflolo said: "I'm trying to find a way to play this. Will IV drop after the announcement whether it's good or bad news? I guess bad news drops the stock back around $5 and who knows with good news..."

drdan said: "You have certainly picked a hot one here! Yes most likely the volatility will come down after the announcement, that is unless the FDA decides to extend the deadline, but even then it may come down a little. LOTS of options being traded on the front month (MAY) waiting for this deadline. If the FDA postpones we will see a lot of shifting, but from what I understand it looks as if they will make the decision and it looks like it should be approved, but you never know especially with 4 of the 13 doctor panel wanting the new drug to either not be approved or be postponed. As for a play, I am not very happy with the prices of the options I would have figured with a volatility of over 200 the prices would be a little better, but they are still good for selling. And with volatility this high you need to be thinking selling. Credit Spreads, Iron Condors, Selling Puts. The problem I see is that this would be a big gamble on where to place the spreads. The stock is only at 15 not leaving enough space below if the FDA does not approve the drug. The stock has also been as high as 24 making 30 to 40 possible with as much excitement that is occurring with this stock. The more I look at this stock and its option prices, I see no real good play just some gambles, sorry."

drdan said: "OK with the exception of just picking a side and just playing a straight play, this is the best play I can see. A Bull Put Spread 7.50/5.00 You can sell this spread for .60 which would be a 24% gain in the next 2 weeks and you would be risking $190 per spread, which is risking less than playing a straight call play, but it limits your gain to only 24%. Otherwise- If you were to choose a call that is out of the money enough to bring the risk close to this you would have to choose $25 strike which is currently $1.75. Will it hit this mark if approved? Yes and most likely higher. If it is not approved or delayed forget it 100% loss or close to it because of the volatility. With the spread you may not have the 100% loss, but then again your not going to have as great of a gain if the new drug is approved. In either case you need to be ready to trade the day the announcement comes. So there you have it my two gambling type plays for this stock."

roarflolo said: "DNDN changed the purpose of their drug study to sort of match the outcome which may increase their chances of a positive decision, but I don't think they'll get an outright approval for their drug, not without more testing. I've been playing around with 1. Sell JAN08 15 Straddle. If IV drops down to 55% (for the call) the break-evens would be $1 and $27. 2. Backratio +1 JAN08 17.5 call, -2 JAN08 25 call. Same thing, if IV drops down to the $30's the break-even would be about $33. The idea being to buy these back as soon as IV drops... If it goes to $40 it'll be very sad :)"

drdan said: "It's all about risk vs reward. Well here is a directional trade that can still play off the volatility if you lose. A Bull Put Spread 12.50/15.00 for a credit of 1.35 which makes the spread a risk of 1.15 or a 117% gain. If things go right and the stock moves up you win. If the stock drops after the announcement it may not matter that much because the volatility is going to drop as well and you should be able to buy the spread back for less before expiration netting you another profit. And then if everything goes wrong your risk is limited to $1.15 less than all the other trades mentioned already."

roarflolo said: "Thanks for the ideas... We'll see if I've got the guts to pull the trigger, maybe I'll just paper-trade more earnings and announcements :laugh:"

holzie said: "Ok you two fools, you got me thinking about this shit so I will tell you what I would do IF I was crazy. I would place 2 time bomb butterflies, selling the 10 strike and 25 strike. the current volatility is over 500% on both so once the announcement will be out, it will drop to, well drop like a rock. I was conservative and only took off 400% IV so I left over 100% on each side, which really I would be surprised if there was any left at all...any additional decrease in IV after the announcement would of course improve this position. So I would gamble 150 bucks. My serious break evens are at 6 and 28, and some small breakevens between 15 and 20. I am not worried about those because the stock is gonna go beyond both points anyways. I am not gonna be here to even test this on "paper" so I can't tell, but you 2 watch it and post the result of the winning strat :) Holz. [IMG]http://linuxgaming.us/images/DNDN-2007-05-08-RISK%20PROFILE.jpg[/IMG]"

drdan said: "No problem Holz... this fool who is betting $240 plus commission on this one with two spread trades sold at $1.30, will let you know the outcome. This is just a fun play no serious money obviously."

holzie said: "Hehe, alright, game on than, Doc :) I know what you mean, this is a really fun trade and if I was here I would put this position on to put my money where my mouth is as I always do. Since we all are using different amounts of funds, we should value the winning strat in terms of YIELD, whether winning or loosing :) Holz."

roarflolo said: "That's a nice one... and if you sell the 10/12.5 put vertical as well it'll look even better except the break-even will move up about a buck. So many angles :)"

holzie said: "That's why options are so beautiful -- notice that we are all basically trading the same thing -- volatility -- yet 3 people with 3 completely different strategies. We almost don't care which way the stock is gonna go, I know I don't. Volatiliy of 500% gives you a lot, a lot of room for error if you play both sides."

JAP said: "DNDN down over 50% in pre-hours :dazed052: Can you imagine the people who bought huge amounts of this stock when it was in the $20's? :angry: :wave:"

holzie said: "Ok, so the results are here and my profit today at 10:35am ET is $90.84 with DNDN @ $7.65. The volatility went from 530% to 155%. One of my butterflies 20/25/30 is worthless of course but the other one more than doubled on the volatility drop. My yield on this trade is 90.84/150 = 61% profit :) Of course I am the only one that didn't play this one with real money. Let's see how you guys did. Holz."

holzie said: "This is the visual, it is still moving so the numbers are a little off. [IMG]http://linuxgaming.us/images/DNDN-DayAfter.jpg[/IMG]"

rrvball said: "Holz, if you had put real money on it, would you close the trade now? or wait for the volatility to decrease even more?"

roarflolo said: "I'm out $105 since I put on the 12.5/15 put vertical. Just a single contract for the experience. The FDA needs more data so DNDN still has a lot of upside potential if their drug works, but that's for another time :)"

holzie said: "[QUOTE=rrvball]Holz, if you had put real money on it, would you close the trade now? or wait for the volatility to decrease even more?[/QUOTE] Oh no, I would have got out when I first said I would get out..that was this morning. This was a pure volatility game with a huge allowance for error, which occured on that bull buttefly -- 100% loss, but the overall position made money ONLY because I sold volatility 4 times higher than it is now. With trades like this you have to get out quick when your exit conditions are met."

holzie said: "[QUOTE=roarflolo]I'm out $105 since I put on the 12.5/15 put vertical. Just a single contract for the experience. The FDA needs more data so DNDN still has a lot of upside potential if their drug works, but that's for another time :)[/QUOTE] Yeah I know, sorry to hear that but I hope this was a good experience for you though, which is what the trade was really about. You know now where you made your mistake, right?"

drdan said: "I LOST!!!! :sad010: I was not paying attention, couldn't, had to be somewhere where I could not check the markets - one reason why not to have a high risk play! Down $260 including commissions. Fun play. I liked your butterfly play Holz. Obviously the way to go in a situation like this, instead of playing the direction. Editted to explain that in this situation it probably would not have mattered if I was watching the markets because of the gap down."

rrvball said: "Holz, that was a great play. Something I wouldn't even think of doing. How did you come up with the double butterfly play? Also, why did you use $5 differences instead of the $2.50 differences in strike prices?"

thezster said: "Do not try this at home.... this move was made by trained and certified professionals....... This web site absolves itself of all responsibility for the actions of neophytes trying to imitate said "trained professionals"..... All comments are those of the participants and do not necessarily reflect the views or opinons of SuperiorInvestor.net:signs053:"

roarflolo said: "[QUOTE]Yeah I know, sorry to hear that but I hope this was a good experience for you though, which is what the trade was really about. You know now where you made your mistake, right?[/QUOTE] First mistake was making a directional play and I was sort-of thinking that they wouldn't get approval yet I went for the up-side because it would be bigger :whacky011: I was playing around with straddles but didn't like the potential unlimited loss on the upside. The butterfly was a much better move."

drdan said: "[QUOTE=thezster]Do not try this at home.... this move was made by trained and certified professionals....... This web site absolves itself of all responsibility for the actions of neophytes trying to imitate said "trained professionals"..... All comments are those of the participants and do not necessarily reflect the views or opinons of SuperiorInvestor.net:signs053:[/QUOTE] [Quote=roarflolo] First mistake was making a directional play and I was sort-of thinking that they wouldn't get approval yet I went for the up-side because it would be bigger I was playing around with straddles but didn't like the potential unlimited loss on the upside. The butterfly was a much better move.[/quote] OK I have to apologize for being an idiot here. For some reason I made a newbie mistake and was thinking that we would be able to buy back the credit spread for less than we bought it for because of the drop in volatility, completely forgetting about the intrinsic value after the options become in the money! The spread of the intrinsic options would have to be at least 2.50 if not more! DOH!!!! :dazed002: Why didn't you call me on that Holz? What a lame brain I was! Sorry Roar if I mislead you with my stupid error. I have too much on my mind lately. Even after I wrote... [quote=drdan]It's all about risk vs reward. Well here is a directional trade that can still play off the volatility if you lose. A Bull Put Spread 12.50/15.00 for a credit of 1.35 which makes the spread a risk of 1.15 or a 117% gain. If things go right and the stock moves up you win. If the stock drops after the announcement it may not matter that much because the volatility is going to drop as well and you should be able to buy the spread back for less before expiration netting you another profit. And then if everything goes wrong your risk is limited to $1.15 less than all the other trades mentioned already.[/quote] I thought well that can't be correct because credit spreads are a directional play, but I looked at it again and figured yeah I guess it is correct because of the high volatility. WRONG!!!! OH well, sorry about my error."

holzie said: "Man, I am sorry I didn't catch that I wasn't paying attention either....all I saw was a directional credit spread, really, and I knew I wasn't gonna try to do one so I just let it slide by me like it slid by you :) How did I pick the 3 butterflies: These speculative butterflies are really good for high profile earnings plays like GOOG and AAPL only when the volatility is at least twice as high as the next month the day before they report. Unlike at-the-money flies that are quite expensive, these "time bomb" butterflies are really really cheap for one. Two, the volatility, which is what you are selling is making it so that you don't have to be that much right, just a little bit, but you still have to pick a direction though because these IVs are something like 40-50% versus normal 25% so you cannot afford to do flies on both sides. In the case of DNDN the vols were so pumped, I mean cmon' 500+%, that I was pretty sure that the IV would drop like under a 100 (I was wrong it droped under 200). I posted the screens so you could see how cheap I was able to make the butterflies so if I lost one side, multiply the value/cost of the other *4 (4 times the expected IV drop) and I was therefore winning in each case. Somebody asked why I chose $5 strikes apart instead of $2.50. That was simple, the wider your strikes, the more it costs you, BUT the more of a margin of error you get. NOW, I want to make it clear that this was a LUCKY trade at best, no skill involved...I mean none. PLUS, without the TOS software platform, I wouldnt have been able to to run this scenario so this trade wouldn't even have occured to me. AND, if you notice, I was only $1.50 away from my loosing point on a 10 point drop -- very very lucky...had the stock went down under $6 I would have lost it all as well. So let's make sure we call this trade what it is and exercise caution with spec trades...they are what they are -- a lotto ticket. But it was fun though wasn't it? Holz."

holzie said: "[QUOTE=thezster]Do not try this at home.... this move was made by trained and certified professionals....... This web site absolves itself of all responsibility for the actions of neophytes trying to imitate said "trained professionals"..... All comments are those of the participants and do not necessarily reflect the views or opinons of SuperiorInvestor.net:signs053:[/QUOTE] Yeah I agree, these people are nuts."

roarflolo said: "No worries, I knew what would happen in the different scenarios (basically $5 or $40 or whatever) thanks to the TOS platform, great for doing what-ifs. One contract lost, chalked up to experience. I'm hurting a lot more on other position from today but I've got my damage control ready for tomorrow so I'll live to trade for June expiration :th_dblthumb2:"

roarflolo said: "I was playing around in TOS and since I still have my losing DNDN puts I'm looking for a revenge trade :laugh: So I modeled this: Sell 20 May07 2.5 Straddle Sell 20 May07 7.5 Straddle Credit: 5.25 Break-even: $2.38 and $7.63 BP effect: $3,716.00 Max Profit: $500.00 (~13% return on BP effect) So... what could go wrong (famous last words) ?"