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Antares Pharma (NASDAQ:ATRS) after breaking out to new highs is going through a profit taking phase. Despite this strong move up, the shorts have increased their position. Given the bullish technical outlook which is covered in detail below, it appears likely that these shorts will be squeezed again. The short percentage of float has gone up from 11.9% in May, to the current 13.10%.

Its Vibex MTX NDA filing has a very high probability of being approved by the FDA, and this could serve as another strong catalyst for higher prices. This stock has a tendency to move fast once the move is underway, thus the best time to establish a position is when the stock is consolidating. One of the best ways to leverage one's position would be to sell puts and use the proceeds to purchase calls. Before we get into this strategy, let us look at few additional reasons to consider Antares.

Some reasons to be bullish on Antares Pharma

  • Quarterly revenue growth of 27.7%.
  • Net income rose from $-10 million in 2009 to $-4 million in 2011.
  • Cash flow per share rose from $-0.12 in 2009 to $-0.04 in 2011.
  • 5 year sales growth rate of 27.8%.
  • EBITDA increased from $-9 million in 2009 to $-4 million in 2011.
  • Sales doubled from $8 million in 2009 to $16 million in 2011.
  • Annual EPS before NRI increased from $-0.14 in 2009 to $-0.05 in 2011.
  • A very good quick ratio and current ratio of 4.2 and 4.7 respectively.
  • Despite the fact that the stock has rallied strongly as of May, the short percentage of float has gone up from 11.9% to 13.1%. This makes it an even stronger candidate for a short squeeze now.
  • Projected year-over-year growth rates of 335% for 2013.
  • Its Vibex MTX NDA filing has a high probability of being approved and could serve as a strong catalyst for the next leg up.
  • $100K invested for 10 years grew to over $900K.

The technical picture


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The stock is still in a strong uptrend as indicated by the purple line. At present, it is undergoing a healthy correction. Most likely individuals who got into the stock early are banking some profits. It took some effort for it to break above the 3.00-3.30 ranges. This zone served as a strong point of resistance, and it only managed to break out on its third attempt. Thus, it is normal to expect the stock to test this former zone of resistance turned into support before exploding to new highs. Ideally, it will pull back to the 3.10-3.30 ranges, trend sideways for a bit and then take off again. Whenever this stock has traded above the above the 1 standard deviation above the 30-day Bollinger moving average, it tends to pull back and vice versa. At present, it's trading below the -1 standard deviation band. The last two times this transpired, the stock reversed course almost immediately. The first instance took place on 15th of December 2011 when the stock gapped down from 2.41 to 1.51. The very next day the stock reversed course and by the 28th of the month it had almost recouped all its losses. The second time this transpired was the 31st of May when it traded below these bands for roughly 3 days before surging higher. Given this pattern and the support it has in 3.00-3.30 ranges, it is reasonable to assume that it is getting ready to reverse course and mount a strong rally relatively soon. One more interesting development is that several key technical indicators validated its move to new highs. This is important because if the new highs are not validated, the stock has a rather low chance of rallying to new highs again.

Suggested strategy for Antares Pharma Inc.

This play has two parts to it. The first part entails selling a put and in the second part, calls are purchased with the proceeds from part 1.

Part 1


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The spread in the Feb 2013, 2.50 puts is too wide and there is nothing between the 2.50 puts and the 5.00 puts. Thus, we will focus on the Feb 2013 puts. The odds of having the shares assigned to you when the puts have so much time on them are low. Option players are generally in the game to trade options and not to assign shares to the seller of the option. Even if the shares are assigned to you, you will up end getting in at a lower price. Currently, if the shares were assigned to you, you would get in at $3.25 when the premium is factored in. There is still a good chance that it could trade down to the 3.30-3.50 ranges to test the former zone of resistance turned into support before breaking out. If this occurs, it should be relatively easy to sell these options for $1.85 or higher. However, for this example, we will assume that the options are sold for $1.80. For each contract sold, $180 will be deposited into your account.

Part 2


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The Feb 2013, 7.50 calls are trading in the 15-30 cent ranges. If the stock pulls back to the stated ranges, it should be easy to purchase these options for roughly 20 cents. The last trade was at 25 cents. For this example, we will assume that the calls can be purchased for $20 cents. For each put sold you will be able to purchase up to 9 calls. If you are seeking less leverage, you could aim for the Feb 2013, 5 call.

Additionally, if you do not want to wait for the stock to pull back, you can sell the puts right now for $1.75 or better and purchase the 7.50 calls at 25 cents or better.


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Benefits of this strategy

With this strategy investors have the opportunity to significantly leverage their position in this stock for a relatively low cost. You would only need to put up $500 to secure the put, but you would be in a position to control 900 shares. If you had to purchase 900 shares at the current price, you would have to put up roughly $3600.

If the stock trades below the strike price, you sold the puts at, the shares could be assigned to your account (assignment usually occurs on the last trading day of the option). Depending on the number of calls you purchased, your cost per share could range from $3.40 (if you purchased one call only) to $5.00 (if you purchased nine calls). As long as you are bullish on the stock, the possibility of having the shares assigned to your account should not be an issue, as this strategy provides you with the chance to get into this stock at a lower price.

Risk factors

The only real risk is that you have a change of heart and are no longer bullish on the prospects of the stock or feel that the stock could trade well below the strike price you sold the puts at. In this case, you could roll the put. Buy back the old puts and sell new out of the money puts. Your overall risk level is low considering that you are only risking $500, but have the chance of walking away with serious gains if the stock takes off again.

Company: Antares Pharma


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Basic overview

  1. Quarterly revenue growth rate = 27.7%
  2. Short percentage of float = 13%
  3. Beta = 0.35
  4. 52 week change = 72%
  5. Sales vs. quarter 1 year ago = 27%
  6. Net income vs. quarter 1 year ago = -80%
  7. Sales 5 year average = 30.99%
  8. Net income for the latest quarter= -74M

Growth

  1. Net Income ($mil) 12/2011 = -4
  2. Net Income ($mil) 12/2010 = -6
  3. Net Income ($mil) 12/2009 = -10
  4. EBITDA ($mil) 12/2011 = -4
  5. EBITDA ($mil) 12/2010 = -6
  6. EBITDA ($mil) 12/2009 = -9
  7. Cash Flow ($/share) 12/2011 = -0.04
  8. Cash Flow ($/share) 12/2010 = -0.07
  9. Cash Flow ($/share) 12/2009 = -0.12
  10. Sales ($mil) 12/2011 = 16
  11. Sales ($mil) 12/2010 = 13
  12. Sales ($mil) 12/2009 = 8
  13. Annual EPS before NRI 12/2007 = -0.14
  14. Annual EPS before NRI 12/2008 = -0.19
  15. Annual EPS before NRI 12/2009 = -0.14
  16. Annual EPS before NRI 12/2010 = -0.07
  17. Annual EPS before NRI 12/2011 = -0.05


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Performance

  1. ROE 5 Year Average = -95.38
  2. Return on Investment = -12.00
  3. Debt/Total Cap 5 Year Average = 11.35
  4. Current Ratio = 4.7
  5. Current Ratio 5 Year Average = 2.98
  6. Quick Ratio = 4.2
  7. Cash Ratio = 3.28

Conclusion

The risk to reward ratio is in the favour of the investor with this strategy. Given that the short interest ratio has increased, the stock has strong support in the 3.00-3.30 ranges and that there is a high probability that the company's Vibex MTX NDA filing will be approved, there is a good chance that the stock will be putting in new highs in the not too distant future.

EPS, company vs. industry and price vs. industry charts obtained from zacks.com. A major portion of the historical/research data used in this article was obtained from zacks.com. Options tables sourced from yahoofinance.com. Option Profit loss graph sourced from poweropt.com.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. Over the next 48-72 hours we might purchase calls on ATRS using the stated strategy.

Disclaimer: It is imperative that you do your due diligence and then determine if the above strategy meets with your risk tolerance levels. The Latin maxim caveat emptor applies-let the buyer beware

Source: Antares Pharma Getting Ready To Break Out Again