Adjusting The Losers

Sold a credit call spread on KALV (Kalvista Pharmaceuticals Inc) Mar 19 Calls (20 / 22.5). A recent development totally blew my position away.

Investors excited about phase 2 trial results drove shares of this clinical-stage biotech about 160% higher on Tuesday morning. KalVista’s lead candidate, KVD900, helped reduce acute swelling and other symptoms that afflict patients with hereditary angioedema (HAE), a rare condition affecting an estimated 10,000 Americans.  In this double crossover study, 68 people with HAE received tablets containing a placebo or KVD900 to be taken after the first signs of an acute HAE attack. Patients that had the placebo the first time around took KVD900 before their second attack and vice versa. Trial participants eventually reached for their usual medication 15% of the time after taking KVD900, compared to 30% of the time after taking a placebo. A majority of trial participants reported relief within an hour and 40 minutes after taking KVD900, compared to a median of 9 hours to feel relief after they took the placebo. https://www.fool.com/investing/2021/02/10/can-kalvista-pharmaceuticals-stock-fly-higher/

As shown above, there was a huge gap up. As my short position is totally overly tested, I may be thinking of doing either one of the following:

  1. Hoping to sell a corresponding credit put spread (with same width as my existing credit call spread) at 15/17.5 (same DTE) with an expected higher / decent credit premium whilst waiting for the stock to gradually close up the gap. This will create an iron condor position.
  2. If no 1. fails, let’s wait for earnings announcement in early March to let probability plays out.

On another losing trade (PERI), I sold a credit call spread (17.50 / 20.00, Mar 19). After its recent earnings (+surpise) announcement, the stock continues its upward trajectory, totally testing my short call position. On a hindsight, I should have not put on a credit call spread, considering the stock appears to be on an uptrend position prior to its earnings announcement.

Nevertheless, what is done is done. The good thing I still have about 37 days DTE to manage this trade. Similar to KALV’s proposed adjustment strategy, I am thinking of selling a corresponding credit put spread (12.5/15.0), thereby creating an iron condor position. Need to get a decent rich premium whilst waiting for possible mean reversion in PERI’s stock price. You certainly wouldn’t want to sell a credit put spread when the stock is mean reverting downward unless the premium is decent enough.

As per Finviz, the target price is $16.90 which is lower than its current share price.

Disclaimer: This is not investment / trading advice or endorsement. Please refer to general disclaimer of this blog. If in doubt, please consult your licensed financial planner / adviser.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s