Wednesday, September 2, 2009

ARNA: I.V. Elevated Ahead of Stage III Results

Arena Pharmaceuticals, Inc. (ARNA) is a clinical stage biopharmaceutical company. Its lead drug candidate is lorcaserin, which is for the treatment of obesity. Clinical trial results (Stage III) are expected in September.

Implied volatility is highly elevated and I believe there has been a bullish skew to the options trading (high call/put ratios have been the norm, while some large blocks of puts have been associated with shares).

I entered a long ARNA position for $4.41/sh position on weakness during trading Tuesday (9/1), and simultaneously wrote $6Oct covered calls for a credit of $0.93. Thus it was a net charge of $3.48/sh with an upside to $6.00.

Update (Sept 18th): ARNA announced trial results for lorcaserin this morning, which were a disappointment. I closed my position, buying back the calls for 15 cents (an 84% gain), and selling the underlying stock for $4.55 (a 3.2% gain).

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