Sunday, February 28, 2010

Medivation's option premiums

Medivation has some phase III trial results coming in the first half of this year for their Alzheimer drug.

When will the results come out?

The CEO, David Hung said in an interview with Mike Huckman of CNBC, that it will be the first half of this year. See 1:57 into the interview.

Mike Huckman "First half of this year. What about March?"

David Hung, "Ah we stuck to our first half as guidance."

The option premiums are pricing in news before March expiration. Is that a good bet? Maybe not.

The stock is at 36, and the March 25 puts are 3, and the March 55 calls are $3.

Obviously, the option market is skewed bullishly towards the stock.

So timid bulls can sell the puts to collect the premium, if they believe the CEO won't report results before March expiration.

Or the bulls can collect the premiums on the calls, if they don't expect news in the next three weeks.

Or you can buy and write, and collect a rich premium.

And leave the upside for someone else!


Bill said...

Is he saying the options market is pricing in a $16 or $60 move?

Palmoni said...

Judging by the call premiums --close to $30!

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