One of the dangers/opportunities in trading biotech played out in AMRN over the last 2 days.
Over the weekend we had news come out with a pre-market gap into 26 and then it dumped into 17s yesterday very early. Prior to the news we had weeks long buying ahead of the news. In pre-market AMRN dropped and likely trapped late shorts resulting in push into 20 late day. This morning we got a push into 20 again on open for a retest and then a fail. Once we broke under 19 we got all day slow selling with accelerated panic selling into the afternoon.
In this mornings watchlist I alerted the trade idea. Here is how using options in addition to or instead of stock could have boosted gains.
AMRN 19 strike puts expiring this week
Being conservative and using the 19puts which is where vwap was in early morning. Assuming you filled late at $1 in the morning, the end of day gains are 300-400% with almost no red post entry.
AMRN 18 strike puts expiring this week
Same idea, but being more aggressive. Filling around 50c-60c with a rally into 250-300c end of day yields gains of 400-600%
I like to use commons and options. For example commons short on 19.70 to with a 1000 shares expecting a high probability exit around 18.80. Take $1000 worth of puts at using vwap as a guide for the strike price.. so 19p. fill 10 contracts for $1. Cover the commons for $800-1000 gain and ride the puts almost risk free for the day.
There are many way to trade options and commons as well as developing your own strategy combining the two.
Best of luck in your trading.
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