Wednesday, January 13, 2010

Cell Therapeutics (CTIC) - Time Spread

--- UPDATE ---
See updated values below, then the original blog post below that (click the image to enlarge it; note the yellow highlighted areas - stock up, vol up, trade volume way up and 34,000 naked call purchases (listed as spread by exchange but that is an error on their part - I saw it trade right next to me on the floor - not a spread))

--- END UPDATE ---

CTIC is a $700 million cancer treatment bio-tech. The LIVEVOL™ Pro Summary is below.

From what I can gather the news is this:
Cell Therapeutics' Pixantrone to get FDA oncologic drug review Feb. 10

Naturally the Feb vol is going to be elevated as FDA news in small companies like this can make or break everything. However, while a slight decline in IV is expected for the next months, CTIC demonstrates a vast difference. The Options Tab snapshot is inlcuded below (click the image to enlarge).

Note the markets in the Feb and March 1 lines. Also the markets in the Feb and March 1.5 puts. With a bit of luck someone might be able to buy March options and sell Feb options for even (same price). No matter how you slice it, a March option is worth more than a Feb option. Further, the company has earnings in March (a volatility elevating event).

N.B. With commissions the analysis is non-trivial (i.e. not necessarily a slam dunk).

Earnings in companies like this often times are non-events as everything is based on drug development and approval rather than quarterly operations. Having said that, any planned company announcement on unknown results is a volatility event - even if it is of reduced importance relative to "normal" companies.

Getting the spread off for even may in fact be impossible as there isn't a great deal of liquidity. Further, with commissions, the even trade might still not be worth it. Whether or not the spread is worth 0.05 or 0.10 becomes a deeper analysis. Either way, it's an interesting study.

This is not trading advice - it is trade analysis. We do not recommend trades in any way. Please note the legal disclaimer below. This is simply one way to analyze a time spread in a very risky instrument.

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