Great Trade Ideas Delivered To Your Inbox

Producing Incredible Results Over Years.

48.9%

The Percentage Of
Winning Picks Premium

Trade Ideas Reaching
Triple-Digit Returns

Disclaimer: Past performance is not indicative of future results. No trading strategy is risk free. Trading and investing involve substantial risk, and you may lose the entire amount of your principal investment or more. You should trade or invest only “risk capital” - money you can afford to lose. Trading and investing is not appropriate for everyone. We urge you to conduct your own research and due diligence and obtain professional advice from your personal financial adviser or investment broker before making any investment decision.

Winning Picks Premium Trade Ideas Stats

An Example of a Great Options Trade Idea

For Educational Purposes Only - Make sure to read the Disclaimer below.

January 22, 2024

Trade Idea: ALT $9.25 (Altimmune Inc.)

Buy June 21st $12 Calls for $2.70
Sell March 15th $20 Calls at $0.65
Net-debit = $2.05


Summary

  • Altimmune, a modestly sized biotechnology firm, has a market capitalization of $630 million. They are developing an obesity treatment named pemvidutide, which has successfully completed Phase 2 trials.
  • The company has announced its intention to find a collaborator to advance pemvidutide into Phase 3 trials and has engaged in talks with various interested parties.
  • Many major pharmaceutical corporations, such as Roche with its recent acquisition of Carmot, are actively pursuing advancements in obesity treatments. They are willing to pay substantial premiums to secure small companies with promising drug candidates.
  • This situation creates an attractive opportunity for risk-reward trading using options.

Timeline

Let me quickly catch you up:

November 7th
On ALT’s earnings Conference Call the Chief Medical Officer Scott Harris states:

We're optimistic about the pending results and look forward to ongoing discussions with the FDA about the design of our Phase 3 program, which we hope to commence with a partner in the second half of 2024.

Later in the Q&A, CEO Vipin Garg states:

As we have said before, obviously, this 48-week data is very fast moving our partnership discussions forward with… we've already received multiple discussions out there, and our goal is to be Phase 3 ready by the second half of next year, and that gives us enough time, plenty of time to also line up a partner to initiate that Phase 3 program. So that's really what we are executing to, we feel that with the data that we are expecting at 48-week read out that would give us the best opportunity to line up a partner to move forward into Phase 3.

November 30th – December 1st
ALT reported encouraging initial results from the Phase 2 trials of its obesity medication, pemvidutide. This news triggered a surge in its stock value in after-hours trading, almost doubling at market open. However, by day's end, the stock price dropped as investors took profits.

Now, the focus shifts to Phase 3.

Remember, just three weeks prior, the management mentioned having "multiple discussions" with potential collaborators for the Phase 3 studies.

December 4th

During the weekend, Roche, recognizing the urgency, finalized a $2.7 billion cash acquisition of Carmot Therapeutics, a private firm with a focus on obesity drugs and a developing product pipeline.

It's crucial to highlight that Carmot's leading drug had only completed Phase 1 trials.

This move by Roche garnered significant attention, resulting in ALT's stock price escalating to around $12 over the ensuing four weeks.

Connecting The Dots

It's reasonable to infer that Roche and ALT were in discussions that didn't meet ALT's expectations.

Given Roche's swift action (mere days?) following the announcement of ALT's successful Phase 2 results, it seems likely that Roche was motivated to act quickly due to the presence of several interested parties, anticipating a rise in the cost of other available assets.

Now keep in mind, the distinction between completing Phase 1 and Phase 2 trials is quite notable.

About 70% of pharmaceuticals advance to Phase 2.

However, only 33% make the leap from Phase 2 to Phase 3.

It's also plausible to consider that ALT's impressive Phase 2 outcomes could be equally or more valuable than Carmot's Phase 1 asset. (While Carmot is exploring other early-stage options, ALT is also working on other promising drugs beyond those for weight loss).

ALT stands as a $500 million company without debt, with its stock priced at $9.25.

A $2 billion offer for ALT would equate to $37 per share.

A $3 billion offer would come to $55 per share.

You see the implication.

Could this be a possibility?

Certainly.

Exploring Another Possibility

There's also the possibility that ALT simply partners with a larger pharmaceutical company, which provides funding for their Phase 3 trial. This arrangement is akin to a big pharma company purchasing an option in ALT.

The deal might go like:

“We invest $400 million now and share revenues IF THE DRUG IS SUCCESSFUL.”

Such offers typically clinch the deal. However, the competition in the obesity drug market is fierce, and Roche's recent actions have significantly increased the entry cost.

ALT's management might respond with:

“Our competitors are ready to pay a high price immediately, without us bearing further risk. You need to offer a more compelling amount for this opportunity.”

It's important to note that a "revenue-share option" can draw more bidders.

For example, there might be six companies capable of investing $400 million to support the Phase 3 trial, but maybe only three can afford to risk $3 billion on such a venture.

In this situation, ALT holds a strategic advantage.

Roche’s recent urgent acquisition suggests that other major players in the pharmaceutical industry are also interested in such opportunities – for instance, companies like Pfizer might be in the mix.

Options Flow

The surge in ALT options trading caught my attention in late December.

A notable number of traders were focusing on short-term options. In the biotech sector, however, I usually look for signals in options with expirations extending beyond three months.

On December 27th, an investor purchased 1,000 ALT January 2025 $10 - $25 Call Spreads for $2.50. This investment of $2.50 could potentially yield a maximum of $12.50, offering a 5-to-1 return.

The standalone January 2025 $10 Calls were priced at $5.50. The investor’s choice to opt for the call spread instead of paying $5.50 for the outright calls suggests a belief that the stock wouldn't reach a level where a 5-to-1 return could be achieved on the outright calls. To break this down: the strike price ($10), plus the premium ($5.50), plus the desired $27.50 profit, equals a stock price target of $43.00.

In summary:

a. The Call Spread implies that for every $1 invested, a $5 return is expected with ALT at $25 or above.

b. For the Outright Calls, each $1 invested needs ALT to reach $43 for the same $5 return. Gains exceed $5 per $1 investment if ALT climbs above $43.

The preference for 'a' indicates a belief that ALT's price is unlikely to surpass $43.

Additional activity was noted on January 9th. An investor bought 2,500 ALT March 15th $20 Calls at approximately $1.00 each. Given the Risk-Reward Breakeven Price ($29.50), the target stock price seems to be in the $30-$35 range.

Then on January 18th, 10,000 more of the ALT March 15th $20 Calls were bought for as much as $0.95.


The Trade

The leadership at ALT is actively seeking a partnership, and I'm convinced there are numerous contenders interested in this opportunity.

The significance of weight-loss drugs in big pharma is undeniable. Obesity is a critical factor in numerous severe health conditions affecting people across various age groups.

To put it simply: addressing obesity could lead to a reduction in the prevalence of related diseases, which in turn could diminish the demand for drugs treating these conditions. This scenario is a risk for pharmaceutical companies, making it crucial not to be left with obsolete products.

Consequently, the value of investing in the obesity treatment sector has skyrocketed. It's not just about missing out on a new opportunity; it's also about potential losses in traditional revenue streams.

Here's a trade I find appealing:

  • Buy 1 ALT June 21st $12 Call at $2.70.
  • Sell 1 ALT March 15th $20 Call for $0.65.
  • Net-debit = $2.05.

The anticipated stock price target is between $25 and $30.

Should there be a significant announcement before March 15th, causing the stock to surge, the maximum profit potential is 290%.

The June expiration is strategically chosen to align closely with the latter half of 2024. If no announcement is made by March 15th, we retain the June options while the March ones expire worthless. We can then reassess our position.

Another attractive option is the ALT March 15th $12 - $20 Call Spreads, priced at $1.00. This offers a 7-to-1 return, but the timing is a crucial factor to consider.




DISCLAIMER
This presentation is for educational purposes only and is not a recommendation or endorsement of any particular investment or investment strategy. Past performance does not indicate or guarantee future success. Returns will vary and all investments involve risks, including loss of principal.

Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options involve risks and are not suitable for everyone. Prior to buying or selling options, an investor must receive a copy of Characteristics and Risks of Standardized Options. Copies may be obtained by contacting your broker, The Options Industry Council at One North Wacker Drive, Chicago, IL 60606, or by visiting www.OptionsEducation.org.

Felix Frey Is not registered as an investment adviser nor a broker/dealer with either the U.S. Securities and Exchange Commission or any state securities regulatory authority. All users of this video and/or website must determine for themselves what specific investments to make or not to make and are urged to consult with their own independent financial advisors with respect to any investment decision. The viewer bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. All opinions, analysis and information included on this report, video and/or website are based on sources believed to be reliable and written or produced in good faith, but should be independently verified, and no representation or warranty of any kind, express or implied, is made, including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, I undertake no responsibility to notify such opinions, analysis or information or to keep such opinions, analysis, or information current. Also be aware that owners, employees, writers, or producers of and for Felix Frey or OptionsGeek,LLC. may have long or short positions in securities that may be discussed on this report, video and/or website. Past results are not indicative of future profits.


Great Trade Ideas Delivered To Your Inbox

Producing Incredible Results Over Years.

48.9%

The Percentage Of Winning Picks Premium

Trade Ideas Reaching Triple-Digit Returns

Winning Picks Premium Trade Ideas Stats

Disclaimer: Past performance is not indicative of future results. No trading strategy is risk free. Trading and investing involve substantial risk, and you may lose the entire amount of your principal investment or more. You should trade or invest only “risk capital” - money you can afford to lose. Trading and investing is not appropriate for everyone. We urge you to conduct your own research and due diligence and obtain professional advice from your personal financial adviser or investment broker before making any investment decision.

An Example of a Great Options Trade Idea

For Educational Purposes Only - Make sure to read the Disclaimer below.

January 21st

Trade Idea: ALT $9.25 (Altimmune Inc.)

Buy June 21st $12 Calls for $2.70
Sell March 15th $20 Calls at $0.65

Net-debit = $2.05


Summary

▶︎ Altimmune, a modestly sized biotechnology firm, has a market capitalization of $630 million. They are developing an obesity treatment named pemvidutide, which has successfully completed Phase 2 trials.

▶︎ The company has announced its intention to find a collaborator to advance pemvidutide into Phase 3 trials and has engaged in talks with various interested parties.

▶︎ Many major pharmaceutical corporations, such as Roche with its recent acquisition of Carmot, are actively pursuing advancements in obesity treatments. They are willing to pay substantial premiums to secure small companies with promising drug candidates.

▶︎ This situation creates an attractive opportunity for risk-reward trading using options.

Timeline

Let me quickly catch you up:

November 7th
On ALT’s earnings Conference Call the Chief Medical Officer Scott Harris states:

We're optimistic about the pending results and look forward to ongoing discussions with the FDA about the design of our Phase 3 program, which we hope to commence with a partner in the second half of 2024.

Later in the Q&A, CEO Vipin Garg states:

As we have said before, obviously, this 48-week data is very fast moving our partnership discussions forward with… we've already received multiple discussions out there, and our goal is to be Phase 3 ready by the second half of next year, and that gives us enough time, plenty of time to also line up a partner to initiate that Phase 3 program. So that's really what we are executing to, we feel that with the data that we are expecting at 48-week read out that would give us the best opportunity to line up a partner to move forward into Phase 3.

November 30th – December 1st
ALT reported encouraging initial results from the Phase 2 trials of its obesity medication, pemvidutide. This news triggered a surge in its stock value in after-hours trading, almost doubling at market open. However, by day's end, the stock price dropped as investors took profits.

Now, the focus shifts to Phase 3.

Remember, just three weeks prior, the management mentioned having "multiple discussions" with potential collaborators for the Phase 3 studies.

December 4th

During the weekend, Roche, recognizing the urgency, finalized a $2.7 billion cash acquisition of Carmot Therapeutics, a private firm with a focus on obesity drugs and a developing product pipeline.

It's crucial to highlight that Carmot's leading drug had only completed Phase 1 trials.

This move by Roche garnered significant attention, resulting in ALT's stock price escalating to around $12 over the ensuing four weeks.

Connecting The Dots

It's reasonable to infer that Roche and ALT were in discussions that didn't meet ALT's expectations.

Given Roche's swift action (mere days?) following the announcement of ALT's successful Phase 2 results, it seems likely that Roche was motivated to act quickly due to the presence of several interested parties, anticipating a rise in the cost of other available assets.

Now keep in mind, the distinction between completing Phase 1 and Phase 2 trials is quite notable.

About 70% of pharmaceuticals advance to Phase 2.

However, only 33% make the leap from Phase 2 to Phase 3.

It's also plausible to consider that ALT's impressive Phase 2 outcomes could be equally or more valuable than Carmot's Phase 1 asset. (While Carmot is exploring other early-stage options, ALT is also working on other promising drugs beyond those for weight loss).

ALT stands as a $500 million company without debt, with its stock priced at $9.25. 

A $2 billion offer for ALT would equate to $37 per share.

A $3 billion offer would come to $55 per share.

You see the implication.

Could this be a possibility?

Certainly.

Exploring Another Possibility

There's also the possibility that ALT simply partners with a larger pharmaceutical company, which provides funding for their Phase 3 trial. This arrangement is akin to a big pharma company purchasing an option in ALT.

The deal might go like:

“We invest $400 million now and share revenues IF THE DRUG IS SUCCESSFUL.”

Such offers typically clinch the deal. However, the competition in the obesity drug market is fierce, and Roche's recent actions have significantly increased the entry cost.

ALT's management might respond with:

“Our competitors are ready to pay a high price immediately, without us bearing further risk. You need to offer a more compelling amount for this opportunity.”

It's important to note that a "revenue-share option" can draw more bidders.

For example, there might be six companies capable of investing $400 million to support the Phase 3 trial, but maybe only three can afford to risk $3 billion on such a venture.

In this situation, ALT holds a strategic advantage.

Roche’s recent urgent acquisition suggests that other major players in the pharmaceutical industry are also interested in such opportunities – for instance, companies like Pfizer might be in the mix.

Options Flow

The surge in ALT options trading caught my attention in late December.

A notable number of traders were focusing on short-term options. In the biotech sector, however, I usually look for signals in options with expirations extending beyond three months.

On December 27th, an investor purchased 1,000 ALT January 2025 $10 - $25 Call Spreads for $2.50. This investment of $2.50 could potentially yield a maximum of $12.50, offering a 5-to-1 return.

The standalone January 2025 $10 Calls were priced at $5.50. The investor’s choice to opt for the call spread instead of paying $5.50 for the outright calls suggests a belief that the stock wouldn't reach a level where a 5-to-1 return could be achieved on the outright calls. 

To break this down: the strike price ($10), plus the premium ($5.50), plus the desired $27.50 profit, equals a stock price target of $43.00.

In summary: 

a. The Call Spread implies that for every $1 invested, a $5 return is expected with ALT at $25 or above.

b. For the Outright Calls, each $1 invested needs ALT to reach $43 for the same $5 return. Gains exceed $5 per $1 investment if ALT climbs above $43.

The preference for 'a' indicates a belief that ALT's price is unlikely to surpass $43.

Additional activity was noted on January 9th. An investor bought 2,500 ALT March 15th $20 Calls at approximately $1.00 each. Given the Risk-Reward Breakeven Price ($29.50), the target stock price seems to be in the $30-$35 range.

Then on January 18th, 10,000 more of the ALT March 15th $20 Calls were bought for as much as $0.95.


The Trade

The leadership at ALT is actively seeking a partnership, and I'm convinced there are numerous contenders interested in this opportunity.

The significance of weight-loss drugs in big pharma is undeniable. Obesity is a critical factor in numerous severe health conditions affecting people across various age groups.

To put it simply: addressing obesity could lead to a reduction in the prevalence of related diseases, which in turn could diminish the demand for drugs treating these conditions. This scenario is a risk for pharmaceutical companies, making it crucial not to be left with obsolete products.

Consequently, the value of investing in the obesity treatment sector has skyrocketed. It's not just about missing out on a new opportunity; it's also about potential losses in traditional revenue streams.

Here's a trade I find appealing:

Buy 1 ALT June 21st $12 Call at $2.70.
Sell 1 ALT March 15th $20 Call for $0.65.
Net-debit = $2.05.

The anticipated stock price target is between $25 and $30.

Should there be a significant announcement before March 15th, causing the stock to surge, the maximum profit potential is 290%.

The June expiration is strategically chosen to align closely with the latter half of 2024. If no announcement is made by March 15th, we retain the June options while the March ones expire worthless. We can then reassess our position.

Another attractive option is the ALT March 15th $12 - $20 Call Spreads, priced at $1.00. This offers a 7-to-1 return, but the timing is a crucial factor to consider.




DISCLAIMER
This presentation is for educational purposes only and is not a recommendation or endorsement of any particular investment or investment strategy. Past performance does not indicate or guarantee future success. Returns will vary and all investments involve risks, including loss of principal.

Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options involve risks and are not suitable for everyone. Prior to buying or selling options, an investor must receive a copy of Characteristics and Risks of Standardized Options. Copies may be obtained by contacting your broker, The Options Industry Council at One North Wacker Drive, Chicago, IL 60606, or by visiting www.OptionsEducation.org.

Felix Frey Is not registered as an investment adviser nor a broker/dealer with either the U.S. Securities and Exchange Commission or any state securities regulatory authority. All users of this video and/or website must determine for themselves what specific investments to make or not to make and are urged to consult with their own independent financial advisors with respect to any investment decision. The viewer bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. All opinions, analysis and information included on this report, video and/or website are based on sources believed to be reliable and written or produced in good faith, but should be independently verified, and no representation or warranty of any kind, express or implied, is made, including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, I undertake no responsibility to notify such opinions, analysis or information or to keep such opinions, analysis, or information current. Also be aware that owners, employees, writers, or producers of and for Felix Frey or OptionsGeek,LLC. may have long or short positions in securities that may be discussed on this report, video and/or website. Past results are not indicative of future profits.


OptionsGeek Learn How to Trade Options Logo2

Information contained in any email and this website maintained by OptionsGeek, LLC (“OptionsGeek”) are provided for educational purposes only and are neither an offer nor a recommendation to buy or sell any security, options on equities or indices, or cryptocurrency. OptionsGeek and its affiliates may hold a position in any of the companies mentioned. OptionsGeek is neither a registered investment adviser nor a broker-dealer and does not provide customized or personalized recommendations. Any one-on-one coaching or similar products or services offered by or through OptionsGeek does not provide or constitute personal advice, does not take into consideration and is not based on the unique or specific needs, objectives or financial circumstances of any person, and is intended for educational purposes only. Past performance is not necessarily indicative of future results. No trading strategy is risk free. Trading and investing involve substantial risk, and you may lose the entire amount of your principal investment or more. You should trade or invest only “risk capital” - money you can afford to lose. Trading and investing is not appropriate for everyone. We urge you to conduct your own research and due diligence and obtain professional advice from your personal financial adviser or investment broker before making any investment decision.

OptionsGeek, LLC  @2024   All Rights Reserved