I currently own a put spread, bought August $12 and sold July $10. Was going to do the same with calls but my order didn't execute yesterday (thought I would have time today!).
Some risk but so much premium for options expiring tomorrow it looks like pretty good chance to make $$$.
Yes, I understand a bull put spread.
My criticism was of your sophmoric suggestion that one need only to sell an Aug 13 put and that, voila, the position would then turn profitable.
Surely you know that it's not that elementary. That's all I was saying.
Surely, you would recognize a bull put spread. The Aug 13 puts are sold to form a credit spread with the Aug 12 puts. Then in your scenario of increasing price of VVUS, the spread can be closed for a profit. Peter
You should sell short-term volatility, or so I've heard by some really rich dudes. Two ways I use are Covered-Calls and "Iron Condor" (a term I know only from optionetics).
Covered Call: A few days ago I bought 1000 stock @12.50 and sold 10 JUL12 calls @ $4.00. Net entry is $8.50, max loss is $8500, max profit is $3500. The risk is that VVUS will drop hard on bad news.
Iron Condor: A combination of a put-credit spread and a call-credit spread. I sold Aug9 and bought Aug5 puts; I sold Aug16 and bought Aug20 calls. If VVUS goes *way* down, the call-credit helps offset the loss in the put-spread; and vice versa. Meanwhile, *when not if* volatility plummets in the next few days I can buy back the position for less than I sold it for so long as VVUS is between, roughly, $9 and $16. That's a $7 range of profitability on a $12 stock....
Disclaimer: I lose more than I make playing the market, but I'm up on my covered-calls and Iron Condor plays.
I like the CC play, although I quit using CCs a long time ago.
I use ICs with different variations, and I like what you've set up.
However, your break-evens are even better than what you've dislcosed because you have to take into account the premiums you received on the two credit spreads.
The covered call trade looks good. The iron condor looks dangerous, what happens if implied volatility goes up because of a positive panel decision? You'll be forced to buy back at higher costs. Peter
I don't understand that options play. If VVUS doesn't get the nod, stock will fall much further than 10 bucks. You need to understand the impact of these decisions before you start messing around with options. You should have bought the July 8 puts and sold the July 5 or 6 puts. Something along those lines.
And frankly, you should have bought call spreads, not put spreads, since this is almost certain to get panel positive review.
Why in the world would you own a bear put diagonal?!?
Surely you know that the premiums are going to deflate.
Plus, it's a bearish spread. Do you think VVUS is going down after approval?
A better play would have been to sell July 12 and buy Aug 10, in my opinion.