Dave made a good case to play the BIIB data next week. He is leaning bullish, which could make price explode past $400. his downside expectation is between $300 and $320.
Whenever I see elevated IV going into a catalyst, especially a biotech data catalyst, I like to see if there is a way to exploit the option play.
In this case, I am suggesting a sort of risk reversal. The key is to use the elevated IV to make a bullish play. So here is the trade:
Buy 1 3Aug $290 put
Sell 1 3Aug $300 put
Buy 1 27Jul $395 call
Sell 1 27Jul $400 call
Combined, this is $.10 credit. The put side is $.83 credit, the call side is $.73 debit. If you don’t get that pricing immediately, you can play with the strikes to make sure you get a credit. Just don’t play with the put side.
The goal here is to have a swing for the fences that can turn into an infield single so long as investors don’t over-react. So make sure you execute those legs at the same time, and at a credit. The put side is the real money maker, so if you want to swing for a double (8.3% return in 2 weeks isn’t bad), do not execute the call side.
Disclosure: Author doesn’t hold this position, but may execute soon.