Drug-Stock Blues Antidote - TheStreet

"I've been rich and I've been poor ... rich is better."

-- William Blakeg

Shareholders of

Elan

(ELN)

and

Biogen Idec

(BIIB) - Get Report

probably found the old bromide "as long as you have your health" a bit tough to swallow this past Monday, as shares of the drug companies lost more than half their value.

In an attempt to keep both our health and wealth, let's look at some upcoming events and impending announcements that could cause similar outsized moves in another drug stock, but potentially to the upside.

Gotta Have Heart

Given all the recent attention and ramifications of the connection between Cox-2 pain medication and heart attacks, the usually academic American College of Cardiology

conference, which kicks off this Sunday, is a sleeper event poised to produce unexpected price movement.

Boston Scientific

(BSX) - Get Report

, the former highflier whose shares tumbled some 30% after a July 2004 recall of its taxus-coated heart stent, could see it shares receive a much needed wake-up call from the event. On Sunday, the conference is slated to release the results of an eight-month study comparing the safety and effectiveness of BSX's Taxus, or Paclitaxel-Eluting stent, with that of rival

Johnson & Johnson's

(JNJ) - Get Report

Cypher, or Sirolimus-Eluting stent.

Boston Scientific offers a good risk/reward opportunity from a technical standpoint -- the stock is sitting at important support near $32 per share. Meanwhile, its options, while still relatively inexpensive, have seen a recent creep higher in their near-term implied volatility, suggesting an impending price move.

Awaiting a Catalyst
Boston Scientific offers a good risk/reward opportunity and has found support at $32

Source: Big Charts

The implied volatility of Boston Scientific's March at-the-money options has risen from a 52-week low of 24% on Feb. 2, to 33% as of Tuesday. While this represents a fairly significant increase, the level is only a modest premium above the historical or actual price volatility and is well below the 52-week high of 68% registered at last July's aforementioned selloff.

With Boston Scientific trading at $32.60, a purchase of some call premium looks attractive. The most straightforward play would simply be to buy the March at-the-money calls, the $32.50 strike, for around $1.15 per contract. This is a bet on good pop in the stock price within the next two weeks. The maximum loss is the cost of the option, the break-even point is $33.65 and the profit potential is unlimited. Getting a double or having BSX trade up to $35 per share, which represents initial resistance, would be a realistic best-case expectation.

Another alternative might be to buy the March/April $35 call spread. This consists of selling the March $35 calls and simultaneously buying April $35 calls; currently this can be done for a net debit of 25 cents, which represents the position's maximum loss. The attraction of the calendar spread is that you are selling a relatively more expensive option, the March call has an implied volatility of 34% compared with April's 25% implied volatility, and it has a quicker rate of time decay. While the calendar spread does present an unlimited profit potential, this occurs under the scenario in which BSX shares remain below $35 per share until March 18, causing those March calls to expire worthless, leaving you outright long the April calls.

But realistic expectations, based on the current options price configuration, would have one looking for the spread to widen to about 90 cents should Boston Scientific trade to around $35 per share during the week of March 18. This would represent an attractive 3.5 times reward to the limited risk.

Steven Smith writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He was a seatholding member of the Chicago Board of Trade (CBOT) and the Chicago Board Options Exchange (CBOE) from May 1989 to August 1995. During that six-year period, he traded multiple markets for his own personal account and acted as an executing broker for third-party accounts. He invites you to send your feedback to

steve.smith@thestreet.com.