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BIOD Presentation 3/16 Creates Trading Opportunities
publication date: Mar 9, 2011
author/source: Mark Messier
Shares of BIOD spiked this week on news that Roth had upgraded their stock to a 'Buy' as well as Biodel would be presenting on 3/16 at the Roth Conference. Per a PR issued by Biodel:
"DANBURY, Conn., March 8, 2011 /PRNewswire/ -- Biodel Inc. (Nasdaq: BIOD) announced today that Dr. Errol De Souza, President and CEO of Biodel, will present a corporate update at the Roth 23rd Annual OC Growth Stock Conference on March 16, 2011 at 1:00 p.m. Pacific Time (4:00 p.m. Eastern Time). The update will include information about the development of new follow-on ultra-rapid-acting insulin formulations including milestones and timelines."
This combination of this news and upgrade caused shares of the stock to rally 15% and volume soared to over 4.5M shares traded. More inportantly, though, it created a potential catalyst in a stock that has a history of volatility.
For example, lets look at how BIOD traded back in January, when a nearly IDENTICAL press release was issued for the JPM conference. Read their press release below:
"DANBURY, Conn., Jan. 6, 2011 /PRNewswire/ -- Biodel Inc. (Nasdaq: BIOD) today announced that Dr. Errol De Souza, President and CEO of Biodel, will present a corporate update at the 29th Annual JPMorgan Healthcare Conference on Thursday, January 13, 2011 at 9:30 a.m. Pacific Time (12:30 p.m. Eastern Time). The update will include information about the development of new follow-on formulations of its lead product, Linjeta™, including milestones and timelines."
Do you notice a few similarities to the two? :)
This will likely create multiple trading opportunities. Take a look at the BIOD's chart.
Do you see that spike in January? That was caused by the JPM conference. The day after the positive presentation by BIOD executives, the share price spikes to nearly $3, before drifting back down over the following weeks.
A similar situation would present two trading opportunities:
1 - RunUp
One way to maximize gains (but also increase risk) during these short term bullish periods is by trading options. Specifically- "in the money" calls. The upcoming conference presentation is on March 16th, which is a Wednesday. March options expire on Saturday March 19th. Because the expiration falls AFTER the catalyst it allows for some volatility in the run-up, as well as with the conference presentation itself.
For example, if:
If March $2 Calls cost $.30 and I purchased 100 contracts my cost would be $3000. I would now have the right to buy BIOD on 3/19/11 for $2. If the share prices run-up or spike to $2.80 (remember it hit near $3 in January) the options would likely be worth about $.90. If I sold the 100 contracts for $.90 ($9000) I would make 200% - $6000.
Remember though, options are risky. If for some reason, share prices of BIOD fall below $2 the options may expire WORTHLESS.
2 - RunDown
Take another look at the chart above. Do you see the share prices of BIOD gradually but steadily fall after the conference? This is common as traders now realize there are months, even years before the next major catalyst. Interest fades and so does the volume and share price.
In the example of the Run-Up above, we assumed that shares of BIOD would hit $2.80 in the run-up. If the conference presentation is positive and impresses investors there is a chance that it may trade higher than $3. However, as noted these are often short term spikes. In January, share prices sold off within a month, and BIOD was back to $2 from its pop to $3.
If this is the case again, purchasing APRIL $2.50 or $3 puts, can be VERY profitable. As much profit that can be made on the run-up can be made on the run-down.
This is an extreme example, but if you took the $9k from the above example and purchased April $2.50 PUTS for $.10 (the share price would have to be in the high $2 rnage or low $3 range) You would have 900 contracts at $.10. If by April 16th (options expiration) shares of BIOD have fallen back to $2, your puts would now be worth $.50, a 5x gain. You could sell these puts for $45k.
AGAIN- the above is an extreme example, but it is possible if BIOD copies the pattern it set for the January JPM conference.