Sunday, March 01, 2009
Arena - A Windfall?
I have an interesting play for you to look at today. But before we get to that I just want to do my quick market recap.
February was a tough month for the market. Friday saw the markets ends with large losses with the Dow and SPX off nearly 20 percent in 2009 alone!
The Dow closed Friday's session with a loss of 119.15 points. The SPX fell 17.74 points finishing the session at 735.09 - a 12 year low. We still have no play on but will be looking next week.
Briefly economic news did little to reassure investors either Friday with fourth-quarter GDP revised sharply lower than expected. The initial reading showed a decline of 3.8 percent, but this figure was revised to a decline of 6.2 percent with estimates for a 5.4 percent decline. Downward revisions were made to personal consumption, but a much lower revision was found in inventories and exports. Next week's economic calendar includes some of the most closely watched releases, including the ISM Mfg. Index on Monday and the Employment Situation report on Friday.
Other major news was the US Government taking an even bigger stake in Citibank (C) which did not go down well.
Anyway now on to that trade which is in some way here to compensate for the lack of plays over the previous months.
I want you all to take a look at a stock called Arena Pharmaceuticals Inc (ARNA).
The website is www.arenapharm.com but look at these pages http://www.arenapharm.com/wt/page/lho.html which deals with an obesity drug it is testing and http://arna.client.shareholder.com/releasedetail.cfm?ReleaseID=352877 which gives you an update on the trials and annouces that these results will be out in end of March. If you do your own research you will probably find this is supposed to be 30 March.
An obesity drug which works has the potential to be huge in the US and Western Europe. These trials are at the phase 3 level. If they are successful they will submit the drug to the FDA. So I am told these companies would not go to the trouble of submitting a drug dealing with obesity to the FDA unless they were super confident it would get approved. The results of these tests are therefore important.
If the results are good then it could be highly likely that the stock will make a jump up. If you want to take advantage of this move then these are my thoughts:
1. This is a speculative play!!!!!! I am only committing 5% of my account on my position. If the results are bad then the stock will probably tank. Be prepared to lose a large proportion if not all your money if the results are bad. Therefore do not bet your entire account on this play.
2. This stock is currently trading at $4.17 as I type. I am only playing this for the upside. If you are interested to do so then can I suggest that you look at the 5 Jul Calls on ARNA (that is the $5 strike July Calls). The reason for this is that if the news is bad then you will not lose as much as you will still have time value in the option. Also the IV on the 5 July Calls is not as high as the other nearer months so once the news comes out you will not lose as much when the IV levels drop.
3. Once the news comes out and the stock moves one way or the other (or not at all)then I suggest you close the position. I know I will. The reason for you holding is no longer there.
4. If you do not have the confidence to place the play online yourself then telephone Thinkorswim (or whoever your broker is) and ask them to place it for you!!
5. Please do your own research!! Don't just take my word for it.
6. If you are inclined to place a trade then I would do so sooner rather than later.
7. Please don't blame me if the results are bad. As I said this is purely speculative!!
That's it. Any questions drop me a line.
Until next time.
February was a tough month for the market. Friday saw the markets ends with large losses with the Dow and SPX off nearly 20 percent in 2009 alone!
The Dow closed Friday's session with a loss of 119.15 points. The SPX fell 17.74 points finishing the session at 735.09 - a 12 year low. We still have no play on but will be looking next week.
Briefly economic news did little to reassure investors either Friday with fourth-quarter GDP revised sharply lower than expected. The initial reading showed a decline of 3.8 percent, but this figure was revised to a decline of 6.2 percent with estimates for a 5.4 percent decline. Downward revisions were made to personal consumption, but a much lower revision was found in inventories and exports. Next week's economic calendar includes some of the most closely watched releases, including the ISM Mfg. Index on Monday and the Employment Situation report on Friday.
Other major news was the US Government taking an even bigger stake in Citibank (C) which did not go down well.
Anyway now on to that trade which is in some way here to compensate for the lack of plays over the previous months.
I want you all to take a look at a stock called Arena Pharmaceuticals Inc (ARNA).
The website is www.arenapharm.com but look at these pages http://www.arenapharm.com/wt/page/lho.html which deals with an obesity drug it is testing and http://arna.client.shareholder.com/releasedetail.cfm?ReleaseID=352877 which gives you an update on the trials and annouces that these results will be out in end of March. If you do your own research you will probably find this is supposed to be 30 March.
An obesity drug which works has the potential to be huge in the US and Western Europe. These trials are at the phase 3 level. If they are successful they will submit the drug to the FDA. So I am told these companies would not go to the trouble of submitting a drug dealing with obesity to the FDA unless they were super confident it would get approved. The results of these tests are therefore important.
If the results are good then it could be highly likely that the stock will make a jump up. If you want to take advantage of this move then these are my thoughts:
1. This is a speculative play!!!!!! I am only committing 5% of my account on my position. If the results are bad then the stock will probably tank. Be prepared to lose a large proportion if not all your money if the results are bad. Therefore do not bet your entire account on this play.
2. This stock is currently trading at $4.17 as I type. I am only playing this for the upside. If you are interested to do so then can I suggest that you look at the 5 Jul Calls on ARNA (that is the $5 strike July Calls). The reason for this is that if the news is bad then you will not lose as much as you will still have time value in the option. Also the IV on the 5 July Calls is not as high as the other nearer months so once the news comes out you will not lose as much when the IV levels drop.
3. Once the news comes out and the stock moves one way or the other (or not at all)then I suggest you close the position. I know I will. The reason for you holding is no longer there.
4. If you do not have the confidence to place the play online yourself then telephone Thinkorswim (or whoever your broker is) and ask them to place it for you!!
5. Please do your own research!! Don't just take my word for it.
6. If you are inclined to place a trade then I would do so sooner rather than later.
7. Please don't blame me if the results are bad. As I said this is purely speculative!!
That's it. Any questions drop me a line.
Until next time.
# posted by Paul @ 3:44 PM 
