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Senior Options Trading Strategist at Optionity, MBA. Our trading approach starts with the fundamentals, then through short-term technical analysis, to finally leverage options trading (with the combination of long and short positions) to achieve favorable risk and reward ratio trading plays. Our... More
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  • Celsion, Facts And Risk Management  0 comments
    Jan 18, 2013 3:53 PM | about stocks: CLSN

    The all-important result for HEAT phase III clinical trial for hepatocellular carcinoma in the liver will be released soon. Celsion Corporation (CLSN) had been on a bullish run until Wednesday, which triggered the circuit breaker on around 1:30PM. CLSN further declined 9.75% on Thursday and closed at $7.31 due to the downgrade by Brean Capital.

    Downgrade and Assurance

    Brean Capital downgraded CLSN from Buy to Sell and reduced its target price from $7 to $1. The firm stated,

    "Recent share price strength places the valuation at a level where we expect more downside from negative results than sustainable upside from positive results. We question the sustainability of a positive valuation inflection upon the potential showing of a progression free survival, PFS, benefit due to the need to show at least a clinically meaningful overall survival (OS) benefit thereafter, which after only a single administration of one active therapy, RFA, versus two active therapies (RFA and ThermoDox), appears more difficult than benefiting PFS, given the introduction of any additional therapy between progression and death. Despite the HEAT trial's SPA, meeting the PFS primary endpoint is not a shoe-in for approval without at the very least a strong numerical OS advantage for those treated with ThermoDox."

    Fortunately, good news remain for CLSN bulls as Keith Markey from Gilford Securities said, "one source indicates that the % of shares sold short dropped by 50%." Markey also indicated he spoke with Celsion's CEO, Michael Tardugno, Wednesday afternoon and was assured the Company had not released any information regarding its pivotal trial. Until the actual release, anything about the results will only be speculation.

    Scientific, Logical Work and Intelligence

    Is it pure speculation? For bullish investors, two articles are highly recommended for review. "Celsion's Phase III Blockbuster Data Revealed And It's Been Right Underneath Your Nose" and "Celsion's Phase III Blockbuster Data Revealed And It's Been Right Underneath Your Nose - Part 2." The insightful contributor from Seeking Alpha, Alex Heisenberg, had compiled the existing data and concluded that "The phase III data will show that ThermoDox works for the majority of patients showing a very large improvement in PFS and even a cure for a good number of patients." Mr. Heisenberg's work was highly scientific and logical. This should remind every investor that researching, analyzing, and understanding the fundamentals is the root for the success of investing. Of course, there will be always risks of unknown or "accidents", so this article will address the part on risk management, which should help bulls to achieve more favorable risk and reward ratio.

    Reviewing Options

    For long-term bulls who are comfortable owning CLSN at $7.31, how about owning the stock at $2.26, while making a potential gain of 92.31% on margin if CLSN closes above $2.50 on February 16, 2013? This could be achieved by setting up the following options credit put spread:

    • Short 1x Feb. 16, 2013 put at the strike price of $2.50 for the credit of $0.64
    • Buy 1x Feb. 16, 2013 put at the strike price of $2.00 for the cost of $0.40

    The maximum profit is $0.24, and the maximum risk/margin requirement is $0.26 ($0.5 loss - $0.24 credit received). If CLSN close above Feb. 16, 2013, 92.31% return on margin will be gained. If CLSN falls below $2.50, CLSN stock will be acquired at $2.26, which is 69.08% cheaper than the current price of $7.31. The credit spread will also benefit from time decay and volatility collapse.

    For more advanced options traders, it may be a good time to review iron condors or ratio spreads. For outright long call and put traders, time decay and volatility collapse needed to be highly concerned.

    For stock holders, buying stock with a put protection will significantly reduce the downside risk while achieving more favorable risk/reward in the short-term.

    In Short

    Intelligence, derived from scientific data and hard work, plus risk management should give investors the best risk/reward ratio for their investment. After all, the success of ThermoDox will not only be highly important for CLSN investors but also critical for liver cancer patients.

    Note: All prices are quoted from the closing of January 17, 2013 and all calculations are before fees and expenses. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in CLSN over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Themes: quick-picks-lists Stocks: CLSN
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