Aaarrrrgggghhhh, or Why Didn't I Buy Those Medivation Puts?
Two or three of you might have read my blog post ahead of the results of the phase III CONNECTION trial of Medivation's Dimebon in Alzheimer's disease, or maybe it was only Portefeuille. I never bought the puts I was analyzing because the premium seemed to just keep increasing despite an increasing share price and shortened time to expiration. But as it turned out, I should have pulled the trigger. The timing was perfect, the data was bad, and the stock tanked. Just to close the circle, I wanted to go back and look at the put prices before and after the phase III data was released. The last prices I had written down were in late February, courtesy of Portefeuille.
March puts: 35:4.7, 25:2.75 June puts 35:11.1, 25:5.5
Here are today's prices: March puts 35:21.5, 25:11.7 June puts 35:22.2, 25:11.7
I underestimated the negative effect of bad data on Medivation's share price. My conservative estimate was 20 and more aggressive estimate was 15. The share price actually opened below 13 yesterday. It may also have been a mistake to avoid the puts because the premiums were so high. Those high premiums and volumes, in addition to the heavy insider selling reported elsewhere, should have been interpreted as harbingers of negative results. Next time a binary event big enough to prompt me to write a three-page blog post that no one reads comes along, I promise I'm going to put enough money down on it to make things interesting.