We are currently short an April $9 put on PRAN. The company said it was going to release some study data on their promising Alzheimer's drug PBT2 this month. If the study data is positive this stock could be $25 overnight. If it is negative it could be $5.

After reading every scrap of analysis I could find on the drug and the potential outcome I am leaning towards positive results. At the end of the prior study the doctors requested the study be extended. They would not has requested this if they were not seeing some positive results. At least that is the conventional wisdom.

I want to change the existing play on PRAN to protect us from disaster and give us a big gain if the data is positive.

Buy to close April $9 put, entry $1.90, currently $1.80, +0.10 gain.

Sell to open May $20 put, currently $10.20.

Buy to open APR $10 put, currently $2.30.

If PRAN spikes the long $10 put will be worthless but the short $20 put will drop in price very quickly. The premium received on the $20 put will allow us to pay for the purchase of the $10 put and have plenty left over.

If PRAN crashes the long $10 put plus the excess premium in the $20 put will protect us until the stock rebounds.

Jim Brown

Send Jim an email