Stocks took another trip to bears avenue today after rising yesterday to break the trend of the losing streak of the last previous three sessions. Nonetheless, we are unfazed by the instability of the market; in fact, option traders tend to thrive on market instability since options trading provide us with leverage for profits with minimal risk.
Today, we explore the options of Avanir Pharmaceuticals Inc. (NASDAQ:AVNR) in another contrarian move that is sure to return profits. Avanir with its market capitalization of $2.00B is a pharmaceutical company focused on developing and commercializing therapeutic products for the treatment of central nervous system disorders. The Company focuses on products for the central nervous system. It also has a number of partnered programs in other therapeutic areas.
Impressive Gains in Share Price
The chart above shows how shares of Avanir Pharmaceuticals have traded within the last three months. You will observe that the stock spiked from a $6.74 trading price on September 12 to make an impressive 79% to a $12.09 on September 13. The stock subsequently rose to make a new 52-week high of $13.09 on September 15 to mark a 386% premium over the 52-week low.
Increased Investor Confidence
The gains recorded in the share price of Avanir Pharmaceuticals last week can be traced to the company’s report of positive phase II clinical trials for its AVP 923, which is meant for evaluating the safety and efficacy of AVP-923 for the treatment of agitation in patients with Alzheimer’s disease.
According to Avanir in a press release, “AVP-923 met its primary endpoint of significantly reducing agitation in Alzheimer’s patients relative to the placebo based on the agitation/aggression domain score of the neuropsychiatric inventory, or NPI.” The company also observed that patients generally showed impressive tolerance for the drug with only a small percentage of patients opting out of the trial due to adverse effects.
On the casual glance, the 79% gains recorded in the share price of Avanir might look discordant to the reality because the AVP-923 is meant to treat just one of the many symptoms of Alzheimer’s disease without treating Alzheimer’s disease itself.
However, a deeper look at the situation shows that the drug has great potential considering the fact that the Food and Drug Administration (FDA) has not approved any drug for treating agitation caused by Alzheimer’s disease. Quoting Jeffrey Cummings, MD, director of the Cleveland Clinic Lou Ruvo Center for Brain Health and chair of the study steering committee, “This is an exciting advancement in Alzheimer’s disease research.”
Joao Siffert, MD, chief medical officer at Avanir can also be quoted saying, “We are extremely excited with the prospect of bringing a potential treatment that can provide clinically meaningful relief to these patients and reduce caregiver burden… With no FDA approved drugs for the treatment of agitation in Alzheimer’s disease, we believe these results represent a breakthrough for patients.”
How to Trade AVNR Options
Shares of Avanir have made an impressive 79% gain within the last two weeks; hence, I am not surprised that the stock is currently consolidating under the most recent highs. However, the consolidation under the new highs affords us a great opportunity to buy AVRN calls on the dip in anticipation of further gains down the road. I have a conservative $15 price target on the stock within the next six months and I am buying the AVNR Mar 2015 12.000 call (AVNR150320C00012000) at an asking price of $2.80.
— Daily Option Alerts