Protalix Biotherapeutics (PLX) is set to receive notification from the FDA on February 25 whether or not their drug candidate for Gaucher’s disease is approved (PDUFA date). I am currently trading this catalyst using a conservative bullish strategy. Here is the trade:
- Buy 15 MAR 10.0 strike Calls @ 1.484 = $2,226.
- Sell 30 MAR 12.50 strike Calls @ 0.642 = ($1,926).
- Buy 15 MAR 15.0 strike Calls @ 0.258 = $387.
- Sell 20 MAR 5.0 strike Puts @ 0.30 = ($600).
- Position Initial P&L = $87.
(Click to enlage)
This position is a Call butterfly spread with a sold lower strike Put. I make money as long as PLX trades (approximately) between $10 and $15 by the March expiration with maximum profit of $3,600. I lose $87 between $5 and $10 and above $15 (see risk diagram). I begin to incur losses if PLX trades below $5 by the March expiration.
The key risk of the trade is if PLX receives a hard CRL – the market (both option implied and analyst sentiment [1]) currently does not expect this outcome. A secondary risk (following approval) is the high probability that PLX will do a secondary offering (given low cash balances and recent $150m shelf filing [2]) – on that front, the shares may not trade in the profit zone [3] by the March expiration.
I retain the option to increase the position size of the butterfly up to 50x100x50 (from 15x30x15).
Notes:
- Analyst consensus estimates of $10 to $13 on approval.
- Source: January 10, 2001 press release.
- My original trade was take advantage of this possible scenario by trading the MAR 5.0/7.5/10.0 strike Put spread – I was unable to fill this position a favorable prices.
Additional disclosure: Long strategy as described in article.
