Last week BCRX received FDA approval for a drug. The market has been anticipating the approval and driving the price up as you can see by the increasing profits in the stock (blue line in the chart below). In response to the good news and jump in stock price we rolled our Dec 18 $4 Calls that we were short to Jan 15 $6 Calls. We purchased the Dec calls for $1.72 and sold the Jan Calls for $1.13 for a debit of $.59. We invested an additional $.59 to increase our short strike price by $1.50. When we do a diagonal roll up to an ATM strike it usually costs $.70 per dollar of roll. The stock was trading above $6 when we did the roll so it should have cost us $1.05 vs $.59 so we are happy with the trade.
The stock is likely to decline “post news” and we might be overly aggressive with the roll to $6 but we do plan on continuing to hold the stock and writing options. Post approval the volatility is likely to decline resulting in smaller premiums when we sell the options in the future.