CLOSING the Options Action Web Extra trade - $VVUS - scott

20 july - so the FDA ruling came and went, you had to be quick and get your exit because the price action this week was pretty much what fuckery looks like. if you get the move in your direction from the catalyst its always best to take that profit quickly instead of hanging around for that last 10cents.. so this trade went from big win to max loss all course of 2days.. closing this credit spread at 1.00 near closing time so its about a max loss if you didnt take profits after the FDA ruling

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22jun - scott has the options action web extra today with a trade in response to a viewer mail question on $VVUS, here is the video, web extra video . if you watch the video and note the dates presented in the viewer email, he says that FDA decision is expected to be on 20july which is also opex day. because everyone is waiting for the FDA decision on their fatboy drug, the stock will likely trade in a range till then. scott recommends selling a put spread that is close to at the money,

Sell the July 24/25 put spread for .40 . as he stated, max profit is .40, max loss .60 if closes below 24 on opex. because the "event" will be on last day of opex, there will not appear to be any time decay as with most spreads because the IV will likely increase into the event , offsetting any time decay.. so i would expect the spread to be flat till then. i like his thought process about if its an up move you profit but im not convinced a delay will be profitable.. gut reaction could just as likely be "sell the stock because there is a problem thats why the decision is delayed" thinking.. so i would take a delay as negative for the stock vs scott thinking that pricing gets crushed and stock is flat. You do a 10 lot of this spread you risk $600 to make $400 which is good, but who know what will happen. its essentially a guess.. which is fine, but dont con yourself into believing its a fundamental reason for entering.. you would be guessing on outcome.. and as i always say if you are going to guess, than guess cheap. so i would not take this trade.. too close to ATM for me and $600 is not a cheap guess. i take the flip side.. if im going to guess, do like scott said and pick a direction, and then figure out a cheap low premium way to setup for that.. general rule is if options IV is high, you do a spread..as is the case here.. IV is at 140..thats crazy level..

i also make the assumption that the options market has the move priced pretty accurately so i use that to determine a range. currently pricing in about an 8-9 dollar move, that gets us to 34ish area. so im going to assume that area will get hit on up move. max risk on scotts trade is $600.. lets risk half of that and do a July 30/34/38 call butterfly.. bid /ask are likely wacky because its afterhours..shows .19/.90 .. so generously assume you can get for .75 x4 for $300 debit.. a pin at 34 gets you $1700 profit but an up move into that range will get you at least a double. not knowing anything about this stock and FDA decisions.. such as do they announce at 930am or 405pm.. and after hours announcment does do anything for us. if i was to put this on i would put it on the week of the announcement instead of right now.

second option is to take that timing risk off the table and do a call spread for Aug, but its still a guess.. i dont like either trade nor scotts.. if not in the stock now id sit on sidelines..its called investing not guessing. all of scotts on-air trades Scotts on-air trades in google docs spreadsheet

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