Orexigen (OREX) - FDA to rule on Orexigen's Contrave on Jan. 31, 2011 (yet another rejection?!)

Next one up

Orexigen (OREX) is the next company on the radar.  Scheduled to hear from the FDA in just 6 trading sessions (Mon, Jan 31, 2011) regarding its weight control medicine, Contrave, Orexigen is a prime target for rapid returns.

Trading map

With a HUGE catalyst ahead, expect a mini surge (anywhere from 3-7% in the share price) from now to Jan 31, 2011.  Why not a greater increase?  Well, from the beginning of this year up until last week, the stock had run up approx. 24% before retracting to its current level (roughly down 12% from the peak of $10.03 on Jan 12, 2011).  The is due to investors taking some profit from the run-up.  However, this dip creates a perfect opportunity for OREX to climb again before FDA's announcement.

What to do exactly?

1) Look to purchase Februrary $9 call options ($1.40) immediately, wait for it to rise, and SELL them by FRIDAY Jan 28.  You do NOT want to hang on to these as I anticipate a rejection from the agency.

2) Meanwhile, look to purchase Februry $9 or $10 put options (whichever possible depending on how high the stock runs by next week).  If and when Orexigen receives a complete response letter from FDA, the stock will crash and put options would shoot through the roof.  

To know more about Orexigen and Contrave, see previous blog entries on 155% surge upon FDA Advisory panel recommendation and 138% return on put options in 2 days.