$RPRX My Trade thoughts on using options:
After a few private messages on the topic here are my thoughts on the trade
RPRX - standard DD discussed on SheffStation for a month now. ADCOM Nov 3 and PDUFA later in the month. Institutional’s own 61% so not retail driven (discussed previously)
Keys to Trade
reduce risk in an uncertain market
high institutional ownership
old school catalyst RunUp play - Adcom/PDUFA
high $22.55 about 1 year ago, near 52 week lows
Profit goals for most of my trades 15%-20% (except long-term holds)
No plans to hold through catalyst
Smart use of options can make it easier to hit the your profit goals, particularly if you are NOT planning on holding through catalyst AND you have DEFINED catalyst date or narrow date range.
Long RPRX at $6.77 but wanted to reduce cost basis in case of market makes another leg down or we back fill and re-test. Sold covered Calls Oct 7 for .75 cent credit. New cost basis is $6.03. But with the the benefit of reducing my cost basis also comes with limiting my upside. In theory max profit is .75 cents for the sold call and .23 cents (difference between entry price and call strike price) 13% gain. In the current market that seemed like a reasonable gain and I feel strongly RPRX won’t trade below $6. I can exit around 6 or set a stop loss to limit any loss.
Next I wanted to juice the upside a little to get over that 15% profit hurdle. I sold $7 Oct Puts for a credit of $1.05. I did this for 25% of my long RPRX position. So that at 26 cents of additional profit ($1.05*0.25). Here I used puts because I am comfortable three weeks before ADCOM to have RPRX shares assigned to me with an effective cost basis of $5.95. I would take that entry with three weeks of RunUp in front of me.
Contrast the above trade to a more Standard SheffStation catalyst play entry at $6.77. Sheff and I would both probably take that entry and target a 15% exit or $7.78. Maybe make a mental stop loss of minus 5-7%. Difference in my view is I used options to give me better downside protection to close to zero (assumes I set stop loss of $6) but retain my standard profit goal of 15%. If RPRX had more “pop” potential, my trade might not be as attractive as I have given up higher gains.
My goal is to add some option ideas and thoughts to the board.
-Bio Hunter
-BioHunter
Twitter: @TheBio_Hunter
