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NuPathe Inc. Message Board

  • crazyworld4u crazyworld4u Nov 18, 2013 5:42 PM Flag

    That was a very sophisticated trade done today....

    2000 December $4 Calls traded at .05
    2000 December $4 Puts traded at 2.50
    200,000 SHARES of stock traded at 1.725
    So, what does that all mean? Is that trader Bullish, Bearish, what?
    Try to analyze it:
    The two option trades both equal 200,000 shares, same as the stock trade.
    Breakeven on the Calls is $4.05
    Breakeven on the Puts is $1.50
    But, the trader is risking $500,000 on the Puts and only $10,000 on the Calls
    Plus, we do not know whether he/she/them bought or sold short the shares.
    What does this all mean then?
    It's hard to know for sure since we can not know for sure whether the shares were bought long or shorted.
    The shares could also have been long shares owned by the entity which were just closed out.
    Tough to know what the trader expects. We don't really know whether he bought or sold short either part of the trade. Therefore, the bottom line is, no matter what ANYONE says here, we can not know whether this is a bullish or bearish bet.
    In any case, to me, it proves that this entity does NOT know what is going to happen, by December 22 (the last day of the December options before expiration). If he/she/they did know they would only have done one side of that option trade. Everyone is still guessing.
    I am guessing that it would be insanity for a company to have spent years developing a new drug/drug device, gain FDA approval, and then let it die before it even gets a chance to get going.

    Sentiment: Strong Buy

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    • Options will be a very interesting topic to discuss in the next week or two (before Dec 21).

      Running total so far for the investor above @ $2.40

      Cost on Options = $510,000
      Reimbursement on Options = 1.6 * 200000 = $320,000
      Profit / Loss from Options = -190,000 (Loss)

      Cost on Shares: 200000 * 1.725 = $345,000
      Reimbursement on Shares: 200000 * 2.40 = $480,000
      Profit / Loss on Shares = + $135,000 (Profit)
      Net = -190,000 + 135,000 = #$%$000 (Loss)

      Yes, clearly he wanted the price to go either way beyond $4 or way below $1.7 to make big bucks.
      In between, he either breaks even or makes/losses a few bucks. This was a very big hedge where he predicted an announcement whether good or bad.

    • based on the large block orders being put in and preventing deceases in price my guess would be that this buyer is long 200,000 shares and not short.. then they are using 40,000+ blocks to move up the price.. if this entity pulls it off their calls and shares will net them a VERY large return. hell their 200,000 shares have already a very large gain (tens of thousands of dollars worth)... If this continues into launch of the patch we should break 4 by end of year...

      • 1 Reply to ozzman_is_the_best
      • The trade is known in the option business as a conversion/reversal it is a riskless trade that is usually
        done to create a long stock position when a stock is hard to borrow. An institution paid a premium to an upstairs firm to facilitate a trade. IMO if you look at the put premium in the options market and the price paid to create this long stock position this stock is becoming really hard to borrow. Any catalyst
        and this will add fuel to the fire. Its trading like someone is trying to cover.

        Sentiment: Strong Buy

    • Crazy, It is bullish. This guy sold the calls and the puts but bought the shares in the AH. See my reply to Ben in this thread. He is betting PPS will never go below $1.58 but could go well beyond $4.

      Sentiment: Strong Buy

    • Too sophisticated for me. I'm a simple retail investor who buys with the assumption that what I buy will rise in price. At this point I'm just hoping for a positive outcome. Meaning I atleast get my money back. Now own about a buck over current price and have the number of shares I targeted. I am starting to feel like I'm at the roulette wheel betting on black. I have a 50/50 chance of hitting. Thought I had a good feel for this one but who knows(it has not done what I expected so far).

    • It is a Bullish spread that was written in my opinion. The 2,000 December Put contracts were most likely sold to open and the 2,000 calls were bought to open. The reason I say this is because if there were that much conviction the price would go down why wouldn't one buy the lower strike price puts $1's or $2's or even $3's and there is no premium on the calls (a nickel) to indicate why anyone would want to sell to open 2,000 calls naked and take on all that risk for almost no premium and little upside (a nickle per share).

      The 200k after-hours was probably a prearranged warrant trade and there will most likely be a lot of short covering like we most likely saw last week in the move up. IF I were going to cover hundreds of thousands to a million or so of shares knowing that would move the price up due to low float of this company I would sell Puts to open for sure before I covered. I would also sell them deep in the money to capture more premium as the stock moved up. I probably wouldn't buy the calls in the 4's and that expire so soon unless I thought there was a good chance the stock would be trading near there and soon! There were a lot of contracts traded in December last week as well and even June. With only days or a few weeks before a potential big announcement they want to cover as there is little upside to being short a $1.75 stock and a lot of downside (stock rocketing up) at this point.

    • Well the 200,000 shares traded at 1.725 are the security card of such strategy. The calls are betting that the price will go above 4.05 and the 200,000 shares in this case will make all the profit if PPS gets there. The 2000 puts on the other hand is betting the price will go below 1.50 for this to be profitable but with the 200,000 shares they bought AH in their pocket already they are only risking 1.725-1.50=0.225. This is a win win deal they went into and I see it more on the bullish sentiment with high uncertainty insurance for this uncertainty happens to be more expensive than the bet.

      Sentiment: Strong Buy

      • 2 Replies to benlima36
      • Ben,

        i am slow today and could not get your logic although I believe are all long here. Assume the three trades were from the same entity (single retailer will not have this large a scale), more likely it sold 2k calls and sold 2k puts and then bought the shares after the hour.

        The gain for option is 200000 * (0.05+2.5) = $510,000.

        in case this gets called out at $4, this entity bought 200K shares at $1.725, costs $345,000.

        If the PPS goes over $4 by 12/22/13, this entity makes 510k-345k=$165K
        if the PPS goes below $1.5, say it is X, this entity loses

        200K * (1.725- X) + 200k * (1.45-X) = 200K * ( 3.175-2X). The break even price is $1.58.

        With that said, if the PPS goes to $1.58, this entity breaks even. From 1.58 to $4, this entity makes $0 to $165K with linear interpolation. if the PPS goes beyond $4, it makes $165K.

        This entity have no out pocket at this moment, its net cost today is negative $165K, i.e., he already have the $165K in his pocket out of nothing.

        It is a very bullish trade to me.

        Sentiment: Strong Buy

      • It is IMPOSSIBLE for us to know for sure. We have no way of knowing whether the entity bought or shorted either one of those option trades. TOTAL guessing is all WE can do. What it does prove to me is that the entity is not certain what is going to happen - by December 22.

        Sentiment: Strong Buy

 
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