We are considering an income trade on Puma Biotechnology (PBYI). The stock popped up on our radar on Saturday, due to open interest and options volume on several OTM strikes. Several news sources covered FDA results on Monday as the stock soared.
“Shares of Puma Biotechnology Inc PBYI soared higher by more than 70 percent on Monday after the U.S. Food and Drug Administration posted briefing documents ahead of the regulatory body’s review of Puma’s PB272 (neratinib) for the extended adjuvant treatment of HER2-positive early stage breast cancer, which is scheduled for Wednesday.” For more on PBYI check Source Benzinga.com
PBYI closed the Tuesday session at 57.80.
We will consider this trade and buy shares of PBYI stock at $57.80 (+/-) per share in multiples of 100 shares and sell 1 option contract per 100 stock shares of the 2017 26-MAY 50.0 call option for approximately $16.75 (+/-) last price at the close.
The trade is not without its risks, so we can project with the stock trading 7.80 (+/-) ITM we will net $8.95 (+/-) to protect our downside exposure. The premium will give us $895.00 of downside protection, if nothing changes.
The trade will expire in 2 days and return more than 20.00% if the stock is assigned at expiration this week.
Additional considerations:
Future Expiration Value In 2 Days if nothing changes and the stock remains at 57.80.
The Future Expiration Value is the amount we will receive when the position is closed on Friday. We subtract our Original Position Value from the Future Expiration Value. This result renders our Expiration Profit/Loss for the position. Since our option will be in-the-money, we may be obligated to deliver our 200 shares at $50.00 per share.
Future Expiration Value = $9,993.00
Future Expiration Profit/Loss = $1,726.00
Future Expiration % Return = 20.9 %
Happy Wednesday,
Vinny