This Drug Company Could Deliver a 43% Gain in One Month
News recently highlighted a trading opportunity. As Business Wire reported, “Alnylam Pharmaceuticals, Inc. (Nasdaq: ALNY), a leading RNAi therapeutics company, [recenty] announced that the marketing authorization application of patisiran for the treatment of patients with hereditary transthyretin-mediated (hATTR) amyloidosis with polyneuropathy has been filed with the Brazilian Health Regulatory Agency (ANVISA).
Patisiran has been granted priority review by ANVISA which is awarded to innovative medicines that treat rare diseases under this accelerated regulatory pathway. Alnylam expects a decision from ANVISA in the first half of 2020.
Patisiran – which will be commercialized following regulatory approval under the brand name ONPATTRO – is Alnylam’s first investigational drug submitted for review in Brazil.
If approved, it will be the first product to be launched and marketed by Alnylam in the country and the first ever RNAi therapeutic to be approved in Latin America.
“The filing of our registration submission for patisiran in Brazil is an important step forward in our continued commitment to bring RNAi therapeutics to people around the world,” said Norton Oliveira, Senior Vice President, Head of Latin America at Alnylam.
“hATTR amyloidosis is a rare progressive condition that is considered endemic in Brazil, affecting more than 5,000 people. Symptoms can manifest throughout the entire body and have a devastating impact on patients.
We look forward to working closely with ANVISA to bring patisiran to these patients in need as quickly as possible.”
The registration submission is based on positive data from the APOLLO Phase 3 study, which evaluated the efficacy and safety of patisiran in hATTR amyloidosis patients with polyneuropathy. Results from the APOLLO study were published in the July 5, 2018 issue of The New England Journal of Medicine.
ONPATTRO is approved by the U.S. Food and Drug Administration (FDA) for the treatment of the polyneuropathy of hATTR amyloidosis in adults.
ONPATTRO is also approved for this indication in Canada and Japan, and is approved in the European Union and Switzerland for the treatment of hATTR amyloidosis in adults with Stage 1 or Stage 2 polyneuropathy.”
Traders seemed to cheer the news as the stock moved higher.
On the longer term chart, the stock appears to be bottoming and could rally from the current position.
A Trade for Short Term Bulls
As with the ownership of any stock, buying ALNY could require a significant amount of capital and exposes the investor to standard risks of owning a stock.
To reduce the risks of a trade, an investor could purchase a call option. This allows them to benefit from upside moves in the stock while limiting risk to the amount paid for the options. However, buying a call option can also require a significant amount of capital and includes the risk of a 100% loss.
Whenever an option is bought, the maximum risk is always equal to 100% of the amount of spent to purchase the option. Since options cost significantly less than a stock, the risk in dollar terms will usually be relatively small to own an option.
To further limit the risks of the trade, an investor could use a bull call spread. This strategy consists of buying one call option and selling another at a higher strike price to help pay for the cost of buying the first call. The spread strategy always reduces the risk of an options trade.
This strategy is designed to profit from a gain in the underlying stock’s price but has the benefit of avoiding the large up-front capital outlay and downside risk of outright stock ownership. The potential risks and rewards of this strategy are summarized in the chart below.
Source: The Options Industry Council
Both the potential profit and loss for the bull call spread are limited. The maximum loss is equal to the net premium paid when the trade is opened. The maximum profit is limited to the difference between the strike prices, less the debit paid to put on the position.
This strategy could be especially appealing with high priced stocks where the share price and options premiums are often a significant commitment of capital for smaller investors.
A Specific Trade for ALNY
Every day, we scan the markets looking for trades with low risk and high potential rewards. These trades are available almost every day and we share them with you as we find them. Now, it’s important to remember these are trading opportunities in volatile stocks.
When we find a potential opportunity, we evaluate it with real market data. But because the trades are volatile, the opportunities may differ by the time you read this. To help you evaluate the current opportunity, we show our math and explain the strategy.
For ALNY, the November 15 options allow a trader to gain exposure to the stock.
A November 15 $85 call option can be bought for about $4.40 and the November 15 $90 call could be sold for about $2.35. This trade would cost $2.05 to open, or $205 since each contract covers 100 shares of stock.
The amount paid to enter the trade is the largest possible loss on the trade. This is generally true whenever a trader is creating a debit to enter an options trade. “Creating a debit” means there is a cost to enter the trade. You could create a debit by simply buying puts or calls to open a directional trade.
In this trade, the maximum loss would be equal to the amount spent to open the trade, or $205.
The maximum gain on the trade is equal to the difference in exercise prices less the amount of the premium paid to open the trade.
For this trade in ALNY the maximum gain is $2.95 ($90 – $85= $5; $5 – $2.05 = $2.95). This represents $295 per contract since each contract covers 100 shares.
Most brokers will require minimum trading capital equal to the risk on the trade, or $205 to open this trade.
That is a potential gain of about 43% based on the amount risked in the trade. The trade could be closed early if the maximum gain is realized before the options expire.