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Biotech / Medical : Ligand (LGND) Breakout!
LGND 189.93+0.5%Jan 2 9:30 AM EST
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To: celeryroot.com who wrote (17819)3/24/1998 5:21:00 PM
From: Flagrante Delictu  Read Replies (2) of 32384
 
Celeryroot, A scenario for today's put trading in LGND. If one noticed that bio stocks tend to get whacked when the FDA rejects their NDA, and conversely, the stocks seem to rally after NDA approval, today's action in the LGND puts may be most logical, if one is certain the FDA decision will be after May expiration & before Aug. expiration.
Specifically, by either first buying 8400 shares of LGND or sending an order into the pit seeking to buy 8400 LGND at the market & simultaneously buying 84 Aug 15 puts at $1.25, a most interesting hedge was set up. The sale of the 84 May 15 puts reimburses the buyer of the stock plus the Aug. 15 puts most of the cost of those Aug.15 puts. He now owns the stock & the Aug. 15 puts & is short the May 15 puts.
Since LGND won't get its NDA in to the FDA until around 4/1/98, it is plausible to assume no decision by the FDA until after May expiration & the concomitant expiration of his May put liability. It is not unlikely that they will decide by Aug. expiration. If so, he's protected vs. loss by the Aug. 15 puts, at a minimal net cost & if the stock does or doesn't run up several points, his cost of protection was minimal.Bernie
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