I just noticed that the call options for Orexigen (OREX) is skyrocketing right now. This company has a weight-loss drug, Contrave, which is scheduled for the FDA advisory committee meeting on Tue, Dec 7. People are betting that this drug will get a positive recommendation from this meeting and the stock is jumping 14.5% higher today. I'm not arguing it is not possible that the drug may succeed. However, I think the chance of failure is equally high. To me, it is a 50-50 bet. Given such an euphoria expected for its success, I see a potentially high rewarding trading for a quick profit within days to bet for its failure.
Two weight-loss drugs have failed this year due to concerns of potential cardiac side effects with such drugs. The FDA now has a very high risk-aversion for potential cardiac side effects for this population. People with obesity, although very bad from the public health perspective, are actually considered "healthy" physically and therefore there is a very low tolerability for any side effects, especially cardiac effects. Contrave contains naltrexone and bupropion. I used to work on bupropion and I know it has been associated with quite significant side effects. It was used for smoking cessation with the drug name called Zyban and it had got a huge public fuss due to its potential cardiac problems. My gut feeling is that Contrave won't go well at the FDA advisory meeting. Of course, this is purely a speculation and I'm ready for a 100% loss.
So here is what I'm doing. Given a high risk of this speculation, I won't bet with too much money, just a few thousands. I bought CREX $3 put options expired Dec 18, which is traded at $0.3-0.35 per contract at the moment. If I'm right, I will easily pocket in a few thousand dollars within days. If I'm wrong, I will lose all the money on the table. This is the beauty of options, with which you can define the overall loss if you are wrong for a trade but with a potentially unlimited upside gain if you are right.
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