This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Options Trade Into Ziopharm's Sarcoma Drug Study Results

NEW YORK ( TheStreet) -- Ziopharm (ZIOP - Get Report) is expected to release top-line data from its phase III trial of palifosfamide for the treatment of metastatic soft tissue sarcoma during the last week of March. I expect the stock to trade down to about $2 per share on negative results and between $5-7 per share on positive data.

Here's an interesting options trade for this important Ziopharm catalyst:

Buy 20 APR 4.0 strike Calls @ 1.40 = $2,800
Sell (20) APR 5.0 strike Calls @ 0.95 = $(1,900)
Sell (20) APR 6.0 strike Calls @ 0.65 = $(1,300)
Buy 20 APR 7.0 strike Calls @ 0.45 = $900
Initial P&L Call Leg = $500 Debit
Sell (10) APR 3.0 strike Puts @ 0.40 = $(400)

Initial Trade P&L = $100 Debit

This is a Call Condor financed almost entirely by a sold Put at a 2x ratio. If one trades aggressively (i.e. trade in between the bid/ask - see my book below on how to do this for illiquid options), it is possible to trade into this structure at zero cost. This trade has a very wide profit zone, between $4 and $7. Maximum profit of $1,900 is achieved between $5 and $6 (see P&L diagram for more detail.)

If we assume the stock trades to $2 on negative data, total loss is equal to $1,100. The stock could trade lower. Assuming these price ranges for potential outcomes, using options provides a superior risk/return to owning a long position in the shares.

One final note: Given the high number of legs in the position, it is important to have access to a cheap options brokerage -- paying too much on commissions using this strategy makes it less economic.

Pelz has no position in ZIOP.

To learn more about using options to trade biotech stocks, check out Tony Pelz's book, The Biotech Trader Handbook or subscribe to Chimera Research Group.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
ZIOP $12.90 0.00%
AAPL $122.55 -0.36%
FB $94.45 -2.60%
GOOG $631.93 0.00%
TSLA $263.82 0.00%

Markets

Chart of I:DJI
DOW 17,751.39 +121.12 0.69%
S&P 500 2,108.57 +15.32 0.73%
NASDAQ 5,111.7330 +22.5270 0.44%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs