AVDL hedged options strategy

2022年12月6日

Dublin-headquartered biopharmaceutical company Avadel Pharmaceuticals currently has a buzzy formulation of sodium oxybate in a Phase 3 clinical trial for the treatment of narcolepsy, among other candidates. The current twice-nightly U.S. narcolepsy oxybate market is estimated at $1.8 billion -- up to half of those patients quit because they need to wake up in the middle of the night to take the second dose. AVDL's LUMRYZ, taken once before bedtime and offering much more ease of use, was recently granted tentative approval by the FDA. Speculatively, in an era where melatonin use and sleep studies are so common, specialized research in sleep disorders and cataplexy may also lead to other medical breakthroughs. Looking at the last wick on the weekly chart, the bulls seem to want to push the stock up. Will the uptrend continue? According to its profile on Yahoo Finance, it's a Strong Buy.

Here's a hedged options trading strategy that makes up to 38% (33% annualized) on AVDL and also protects from a price drop of up to 44% as of 1/19/24.

Buy 2 $7.50 call
Sell 2 $10 call
Sell 3 $5 put
Exp 1/19/24

Capital required: $1450