In contrast to the theory that a watched pot never boils, this year some of the best options trading opportunities have come by watching companies with pending news. Earnings excluded, some anticipated events occurred not close to the predicted timetable but produced substantial price moves. Often these moves surpassed expectations as measured by the implied volatility of the related options heading into the event.

Even better from a trader's standpoint, typically the decisions, rulings, takeover bids and product launches do not immediately end the uncertainty over a stock's price. That means there are usually weeks of active trading surrounding an event date.

Obviously, one of the most fertile areas for event trades has been the drugs/biotech area. We saw stocks such as

Sepracor

( SEPR) jump 14% in a single day last week on approval of an insomnia drug.

OSI Pharmaceuticals

( OSIP) tumbled 24% in November when its lung cancer drug was

approved

-- go figure -- but then soared 50% to a new high last week as it benefited from a study that showed

AstraZeneca's

(AZN) - Get Report

competing lung cancer drug was less effective.

The point is that in each of these cases, the resulting moves after the release of anticipated news was greater than had been priced into the options. Getting long premium, through the purchase of a straddle, strangle or even some form of a debit spread, proved to be a profitable strategy.

Eye on the Prize

With this in mind, I'm going to keep my eye on some other situations that are scheduled to hit a boiling point in the next few weeks. The idea is to establish a long premium or positions with a positive gamma, or those whose delta turns more positive as price rises and delta becomes increasingly negative (position gets shorter) as the underlying security's price declines.

In deciding whether the purchase of high-priced options makes sense, you need to use some element of personal discretion or opinion. Even though option markets are notoriously efficient at pricing in known and expected data, no one really knows the full impact of regulatory or legal rulings. Both can prove to be more sweeping, damaging or endorsing than expected.

The worst scenario for a buyer of options is for the event to have fewer implications than expected. This will result in little price movement and a steep decline in implied volatility. In choosing event candidates, one needs to make a judgment that the price move in the underlying security will overcome the inevitable post-event volatility crush.

Here are some stocks expected to have rulings or decisions in coming weeks whose options might be underestimating the potential price move.

Supergen

( SUPG): A delay in the FDA's hearing concerning its pancreatic cancer drug can be seen as a mild positive. Because many investors had sold down the stock expecting on outright rejection, any positive news could be a major positive catalyst.

The rescheduled date to keep an eye on should come in the second week of February. After the delay was announced, the implied volatility of the front-month options dropped from 117% to 79% in a three-week span. While this is still expensive, the fact that the new hearing still looms should keep a floor on the option prices. With the stock trading below $7, February $10 calls can be purchased for a mere 20 cents. Favorable news could send the stock back to its 52-week high of $14 per share.

Cyberonics

(CYBX)

: The company should hear about its depression drug from the FDA in the last week of January. After a violent summer selloff down to $13, the stock rebounded to the $20 level and has been treading water in the middle of its 52-week range for the last 10 weeks.

Next month's decision should provide the catalyst to break this tight trading range. The options reflect this anticipated event: February options are significantly more expensive than either the January ones (which will expire before the event) or April's, or even later-dated options.

Beyond the Day

One approach would be to use out-of-the-money calendar spreads in which you sell the more expensive February options and buy the relatively cheaper April options. A substantial move is expected, so it's important to use strikes that are out of the money and represent price points to which you think they can move but not greatly surpass. Remember, a long calendar spread loses value as it moves deeper into the money, which causes the spread between the long and short call to narrow.

With Cyberonics currently trading at $20, one suggestion might be to buy the April $30 call (cost of $1 and an implied volatility of 75%) and sell the February $30 call (50 cents and an implied volatility of 87%) for a net debit of 50 cents. The position will profit if Cyberonics climbs toward $30 and the calendar spread widens prior to the February expiration. The position's risk is limited to its cost of 50 cents if the shares plummet, causing both options to expire worthless. Here's the best scenario: The stock moves moderately higher, stays below $30 before February 18 expiration, making the February options expire worthless and leaving you outright long the April calls. Then the stock keeps trending higher in the following months.

The key to trading events is not only focusing on what is expected to happen, but what could unexpectedly happen.

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 1989 to 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.