Tuesday, December 2, 2014

Impax - A Near Term Catalyst

  • January 9th will be an important event date for Impax Laboratories as the FDA is likely to lift the ban on lead drug Rytary.
  • Either way, investors should be prepared for a major swing in the stock price.
  • Multiple other current drug applications now with the FDA are riding on this event.
  • Impax has moved its projected location for Rytary production from the troubled Hayward plant to their Taiwan location.
  • Impax has expended over $25 million on consulting and other costs to meet FDA requirements for its Hayward and Taiwan plants.
Note: You can review my new Seeking Alpha article here: Impax Laboratories: A Near Term Catalyst

Regarding how to trade on this information, here are some ideas you can consider:

The first strategy that occurs to me is an options strategy. It is the use of a long straddle. Basically, it is a way you can profit regardless of whether the stock rises or falls, but can lose all or some of the cost of the option if the stock doesn't move or doesn't move enough. The mechanics are these: you buy 1 call and 1 put in the same underlying stock with the same strike price expiring the same month. An example (only an example) would be a January or February 30 call and put on IPXL. In addition to taking advantage of a significant move in the stock, a trader can also profit because, as we move closer to that date, increased volatility may push both option prices up. The options could then be liquidated prior to any announcement. This idea requires that you do your homework, calculating your breakeven associated with various scenarios. That means the price you pay for the option is important.
A second strategy may be easier to execute. It would be simply to buy the stock and buy puts to protect your position. You could vary this idea based on your best reading of which way the event is likely to go. For example, if you felt the odds favored a positive stock reaction, you could buy say 300 shares of the stock, but cover it with only 1 or 2 puts. If you are feeling more queasy about it, you could buy 100 shares and buy 2 puts.
Again, just some thoughts. If you would merely like to learn more about trading equity options, the best place to start would be with the Options Industry Council's excellent and free online educational tools.
[Disclaimer -You can lose money in the stock and/or options markets. You are responsible for your own investing decisions. My comments are information and represent strategies I have either used in the past or may use in the future. So think through what to do next very carefully. If I were to give any advice at all, if you plan to trade on Impax, STAY SMALL (whatever small means to you), but don't trade at all if you are uncomfortable with the use of equity options]

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