Sell (10) JAN 7.0 strike Calls at 0.95 = $(950)
Initial P&L = $(1,900) Credit This is a short Strangle sold for a credit of $1,900. Maximum profit occurs between $4 and $7 and is equal to the premium sold, or $1,900. The trade breaks even at approximately $2 and $9 - an extremely wide range. [See P&L Diagram below.] The key risk in the trade is that the sold Puts and Calls are naked (i.e. they are not covered.) Risk can be quite substantial if the stock moves beyond what is implied by the options market, especially on the Call side of the trade. Pelz has no position in Alexza. To learn more about using options to trade biotech catalysts, check out Tony Pelz's book, The Biotech Trader Handbook.