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Amarin Corporation plc Message Board

  • tabloidjunke tabloidjunke Dec 5, 2012 12:46 PM Flag

    Options guess

    hi guys,

    even though i am long AMRN..i am beginning to sense if amrn doesn't get nce or another delay might cause stock to go further down and with that BO may happen or not happen..i want to explore options and my guess is it'll go up in the near future once the dust is clear..i need some help from u..

    if i buy Jan 2014 strike 3 at 9 dollars premium and if amrn has a BO..let's say at 30..how much the premium is going to be? could you please let me know..

    ex: if i put 50K..Jan 2014 strike 3 at 9 dollars will get me 55 contracts and i can't guess how much it'll be if amrn gets a BO at 30 dollars..Any help will be appreciated..

    Sentiment: Buy

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • "My suggestion is that if you really want to buy options on AMRN, you should choose an expiration date that is sooner than 1 year out (monthly or quarterly). This will allow you to maximize your profits due to the speculative nature and extreme volatility of the stock. I don't mess with weekly options as they are way too risky in my opinion."

      mjfuter (and others interested in options)--

      I've been seeing a lot of disinformation on the subject of options for AMRN. The above is just one example. In short, before entering into any option trade (call, put, spread, leap, condor, straddle, etc), the first thing you must do is this:

      Identify your thesis for the underlying stock (in this case, AMRN). Every thesis has two elements: price and time frame. So, you must first state to yourself (if not to your spouse or partner who might be interested in seeing you not lose money), "AMRN stock price will be $XX by a specific date" (normally, the option expiration date for the option series you intend to use). One example I've seen on this thread is "AMRN will be $30 by Jan 18th 2014" (OPEX). Another example might be "AMRN will be at least $10 but no higher than $20 by June 22, 2013".

      Ok, now with your thesis in hand, it becomes a simple mathematical exercise to determine how to invest your pot of money intended for this trade in the AMRN options under consideration. If you are looking to buy call options with the pot of money, then for each strike price, calculate the number of contracts to be bought using the latest ask price, and then the corresponding net profit based on the thesis. The strike price that maximizes net profit is the one to be bought. All that needs to happen is for your thesis to come true.

      As for using weekly or monthly options, these can be put to very good use if you own long-term options. For example, if you own, say, 100 Jan 2014 Call $12 options (now at about $2.20), consider selling 100 Jan 2013 Call $12 options for .50 cents, or the March 2013 Call $12 options for $1.00, or the June 2013 Call $12 options for $1.35. The idea, of course, is to lower the basis for owning the Jan 2014 options. In some scenarios, you could even take in more money over time than you originally paid for the longer dated options.

      And once AMRN gets near $12 between now and Jan 2014, you could also sell the weekly Call $12's to better manage the volatility in the stock price and take advantage of spikes in the stock price by selling calls when the pps approaches $12. (If called away, you can be sure that your longer dated options will have made up some very good money).

      The above strategy (buying the Jan 2014 calls and selling earlier dated calls) is known as a calendar spread.

      Note too that if you are 100% certain that AMRN will never go below a certain price, then consider selling puts at strikes below that price in order to take in additional premium (subject to margin requirements). At the moment, most people seem to think AMRN won't go below $6. So consider selling Jan 2014 Put $7 for $1.80 or Jan 2014 Put $5 for $.80, where the proceeds could also be used to support buying call options. If your thesis about AMRN is correct, then you have found in these put trades a source for 'free money', as it's often called when selling cash-secured puts that are never exercised.

      To reiterate: first establish your thesis, then let it guide you toward the appropriate option strategy.

    • "My suggestion is that if you really want to buy options on AMRN, you should choose an expiration date that is sooner than 1 year out (monthly or quarterly). This will allow you to maximize your profits due to the speculative nature and extreme volatility of the stock. I don't mess with weekly options as they are way too risky in my opinion."

      mjfuter (and others interested in options)--

      I've been seeing a lot of disinformation on the subject of options for AMRN. The above is just one example. In short, before entering into any option trade (call, put, spread, leap, condor, straddle, etc), the first thing you must do is this:

      Identify your thesis for the underlying stock (in this case, AMRN). Every thesis has two elements: price and time frame. So, you must first state to yourself (if not to your spouse or partner who might be interested in seeing you not lose money), "AMRN stock price will be $XX by a specific date" (normally, the option expiration date for the option series you intend to use). One example I've seen on this thread is "AMRN will be $30 by Jan 18th 2014" (OPEX). Another example might be "AMRN will be at least $10 but no higher than $20 by June 22, 2013".

      Ok, now with your thesis in hand, it becomes a simple mathematical exercise to determine how to invest your pot of money intended for this trade in the AMRN options under consideration. If you are looking to buy call options with the pot of money, then for each strike price, calculate the number of contracts to be bought using the latest ask price, and then the corresponding net profit based on the thesis. The strike price that maximizes net profit is the one to be bought. All that needs to happen is for your thesis to come true.

      As for using weekly or monthly options, these can be put to very good use if you own long-term options. For example, if you own, say, 100 Jan 2014 Call $12 options (now at about $2.20), consider selling 100 Jan 2013 Call $12 options for .50 cents, or the March 2013 Call $12 options for $1.00, or the June 2013 Call $12 options for $1.35. The idea, of course, is to lower the basis for owning the Jan 2014 options. In some scenarios, you could even take in more money over time than you originally paid for the longer dated options.

      And once AMRN gets near $12 between now and Jan 2014, you could also sell the weekly Call $12's to better manage the volatility in the stock price and take advantage of spikes in the stock price by selling calls when the pps approaches $12. (If called away, you can be sure that your longer dated options will have made up some very good money).

      The above strategy (buying the Jan 2014 calls and selling earlier dated calls) is known as a calendar spread.

      Note too that if you are 100% certain that AMRN will never go below a certain price, then consider selling puts at strikes below that price in order to take in additional premium (subject to margin requirements). At the moment, most people seem to think AMRN won't go below $6. So consider selling Jan 2014 Put $7 for $1.80 or Jan 2014 Put $5 for $.80, where the proceeds could also be used to support buying call options. If your thesis about AMRN is correct, then you have found in these put trades a source for 'free money', as it's often called when selling cash-secured puts that are never exercised.

      To reiterate: first establish your thesis, then let it guide you toward the appropriate option strategy.

    • Take a look at the equity collar trade for AMRN. You can buy 3 month out puts at $9 strike, buy the stock, sell JAN $10 Calls and be out about $1 if the stock goes nowhere with two months of put protection. If the price goes up you won't lose anything and you'll have the puts. At this point you are actually hoping that nothing will happen prior to JAN 18. Problem is that the hoped for Orange Book updates often happen on the third Friday which complicates AMRN for this strategy. However for alot of situations it works great and you know your potential loss going into the situation.

    • Will no one help this poor person??

      Option premiums are calculated based on time-value which is very complex (i.e. Google search "Options Wiki", click on the second search result and you'll see all the calculus for yourself!) so I don't believe anyone can give you an exact answer. Here's my best estimate:

      Step 1: 55 contracts x 100 sh / contract = 5,500 sh (you control)
      Step 2: ($30 BO - $3 Strike) x 5,500 = $148,500 (options value on $30/sh AMRN BO)

      This is what I decided to do using only $5k and buying Mar 2013 $20 Calls for $0.35 premium instead..

      Step 1: 142 contracts x 100 sh / contract = 14,200 sh (I control)
      Step 2: ($30 BO - $20 Strike) x 14,200 = $142,000 (options value on $30/sh AMRN BO)

      Your options strategy cost 10x what mine did. However, you have 9 months of additional life on your contracts. The questions comes down to.. When do you think AMRN will get bought out and for how much? Remember the concept of time-value!

      Sentiment: Strong Buy

      • 1 Reply to mjfuter
      • Hi Mjfuter,

        Thanks for the info..really appreciate it..i have been an extremely light trader for 3-4 years and got serious with ARNA and AMRN..Funny thing is i never believed in ARNA's obesity drug and i made some good money. I have complete faith in AMRN and it's going down..With it'sgood efficaly profile, this drug should be a blockbuster..Anyways, I'll stick to this until the end..

        Oh man, when i looked at the Options, I am such a dumb beep..i would have made tons of money had i known about this on ARNA..

        Thanks for your explanation..I wanna sell my shares and buy call options for Jan 2014 for strike 20 and 15..I believe this stock is either 5 dollars or 25 dollars by the end of next year..

        This is what i think and I would like to hear more from you..

        1.currently, it is at 9.70 and after the correction it might be at 9.30 or 10.00..
        2. with Yeah on NCE and BO speculation, it might be around 15-16 and a BO of 30-35 is possible and I believe even if they GIA, with anchor approval it'll be above 20 by the end of next year.
        3.With No on NCE and BO speculation, might be around 7.5 - 8.25, i donno how a BO of 25 is possible, they'll GIA and stock should rebound with Sales and SNDA..Even if they don't do well, a BO of 25 is possible with ANCHOR submission, partnership and eventually approval.

        Either way i see it, if you are bullish, then it would be in late 10's or early 20's, who knows may be in 30's by the end of next year.

        Shorts are saying this is just a fish oil and won't run but I believe it serves the purpose without any side effects. I don't see in any way for this to go bankrupt.

        Please share your thoughts on possible stock movement and thanks for your help again.

        Sentiment: Buy

    • If you cant figure that out for youself you shouldnt be in the market at all pal.

    • Is this a legitimate question? You're paying $9 and buying a $3 strike call?? Why not just buy the stock?

      Sentiment: Strong Buy

    • Buying LEAPs for Jan. 2014 for this stock would be a huge waste of money. There is virtually NO interest in this strike at 3.00 and the B/A is 7.30/11.60. The last activity (15 contracts is the Open Interest and the last trades at 9.90 were 6 months ago on 5/31/12!). The simple answer to your question is that a B/O at 30 will net you a profit of the difference between your cost (Let's say 9 dollars which would make it have NO Time value right now which is not the case) and the B/O price (30 in your example). So you would net about 21 dollars (before taxes of course). If you don't understand how this simple trade works and need to ask a question like this I suggest you don't start spending 50K on options that might lose you a large amount of money if the B/O never comes or if the B/O price ends up being much lower than you expected. There is a reason certain options have little interest. Smart money doesn't look at this and say- that's a great deal. Look at the volume on the popular options to get an idea of where they are placing their bets.

 
AMRN
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