Sunday, October 29, 2006

Vertex Pharmaceuticals (VRTX) update

Vertex recently announced interim results of VX-950 clinical trials for treatment of Hepatitis-C. Here is the link for the news release. 24 of 26 patients on VX950 and existing treatment of Pegylated Interferon and Ribavirin showed no detectable of Hep-C virus after stopping the therapy. Furthermore, the therapy was well tolerated which is almost as important as been efficacious.I have previously written about this stock link and think the company has a great future. After the latest anouncement, the stock soared by 17% as shown below in the chart.
I think the gap seen in the chart will be filled. I recommend selling January $45 calls which are now trading at $2.35. Selling calls has lower risk profile than buying either calls and puts but it does have a disadvantage that you are obligated to a potential trade until they expire. To hedge this risk, you can buy some January $50 calls with a portion of the proceedings in case the stock continues to go up.

Bottom line: I expect VRTX trading down or sideways for the next couple of months. You can take advantage of this highly probably scenario by either selling calls, buying puts or selling your shares and buying at a lower price. Either way, I don't think the stock could continue to go up in this market given that profitability is uncretain and still years away.


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