|This Trade Was Closed May 8, 2012|
Blorgggg. I shouldn’t have bought that call — alas. However, this is not a complete disaster. I am tempted to leave the calls on… a bounce at this level seems likely and it could help turn this into a profitable spread. I think that if the market hadn’t opened like it did I would more seriously consider that.
Sold June 11 Puts: 1.88
Sold June 12 Calls: .45
Net = $2.33
Net loss = $.16
Overall, for an earnings play on a stock like DNDN I think this was fine. When they work, its great. When it doesn’t work, it is usually a complete loss — so I am going to chalk this one up on the losing side but I don’t feel bad about the decisions I made.
Original Trade Post:
DNDN is reporting earnings next week and I am interested in attempting another bio/health stock. I think the entire two groups are inflated following the last runup in stocks and the SCOTUS case. DNDN is up against a long term resistance level at $12,which tells me they have a lot of sellers just waiting for an excuse to dump the stock.
OK the title is a bit of an exaggeration but I think that the downside here is in the $5 range if they disappoint investors again. The market is in no mood for stocks that are relying on growth strategies and new products for future revenue. In the case of DNDN they don’t even have earnings yet, and any hiccups will send it down fast.
One more comment: The premium on these options is craaazy so if you are looking for a short term trade, this is one that I would assume the likely downside if the report surprises is 100% but the upside on a disappointment could be 200-400%.
- The Ticker: DNDN
- Cost: $2.49 net debit per share
- The Trade
As I wrote before I am already long the June 11 Puts at $1.37 but today’s market action has me on edge. I know I will be ramping up the cost of this trade considerably but I am going to hedge this with a strangle by adding the May $12 calls for $1.12
- June 11 Puts: $1.37
- May 12 Calls: $1.12
Total debit: $2.49
I figure my breakeven is somewhere north of $14.50 per share or South of $9.00 or so.
- Trade Opened: May 3, 2012
- Trade Closed: May 8, 2012
Chart courtesy Finviz. Click to open larger.
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