A few weeks ago I wrote about an options strategy for Vivus (VVUS) prior to its PDUFA date for Qnexa. I had planned on selling April puts and calls, while buying June puts and calls. The logic was that the April options were highly priced due to volatility, which would fade after the FDA decision, whereas the June options were not as highly priced.
I planned on buying both puts and calls since I had no idea what the FDA would do -- whether it would approve as is (great for calls), approve on the condition of a cardiovascular study after approval (good for calls), not approve till a cardiovascular study was done (good for puts), or simply reject the NDA (great for puts). Also, I suspected that the FDA may just kick the can down the road with a three month extension, in which case the April options would get slaughtered, whereas the June options would not be affected as much. As it turns out, that is what happened.
The table shows the purchase and sale price of the options (including commissions):
Sold April call strike price 22
Sold April put strike price 22
Bought June put strike price 22
Bought June call strike price 22
Total cost of initiating position: $292 per contract
Total gain: $226 per contract
Gain percentage: 77%
This is not bad for a three week period. I plan on repeating this for September options (the next available after June), since the PDUFA date for Qnexa is now in July, and those options are very pricey.
Disclosure: I am long VVUS.