For December 31, 2012
Sell SGYP January 5.00 puts for 1.05 or better.
We will use limit orders to sell the options.
We are selling ATM near term puts for two reasons: 1) the option implied volatility for this stock is highly elevated; and 2) the short term nature of the trade exposes our capital to the market for as little time as possible. In the event the market closes above 5.00 on January 19, 2013 the put options will expire worthless and we will be left with a profit of 1.05 on a 5.00 investment, with our capital at risk for less than 30 days. That is our objective. The annualized return on invested capital is over 250%. In the event the stock closes below 5.00 in mid-January, we will own it at 3.95.
Synergy's primary drug, plecanatide, is similar to a natural human hormone that regulates the secretion of fluid into the intestine. Plecanatide is being developed to treat Chronic Idiopathic Constipation (CIC) and Constipation Predominant Irritable Bowel Syndrome (IBS-C). The company is engaged in various clinical studies to test the drug; and if the results are successful, eventually leading to potential FDA approval, the market for the drug is economically viable. The company recently announced the beginning of a new trial here: http://seekingalpha.com/news-article/5165761-synergy-pharmaceuticals-begins-phase-iib-trial-of-plecanatide-in-irritable-bowel-syndrome-with-constipation-ibs-c
An excellent write up on the company's operations, the status of plecanatide trials and the possible value of the stock is here: seekingalpha.com/article/1069471-synergy...-events
The trade carries significant risk; and it should only be traded from within the speculative segment of the portfolio. The risk is that the stock sells off below 3.95 a share, which is our break even point for the trade. This is 20% below the present market price. It is also below major Fibonacci support on the candlestick charts. A point and figure chart shows this stock outperforming the general market and its peers. We think that 3.95 is an acceptable cushion against the risk of loss, especially in relation to the potential reward, and in consideration of the very short duration of our exposure.
Happy New Year!
The Deliberate Trader
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SGYP over the next 72 hours.