Spectrum Pharmaceuticals (SPPI): PDUFA in 3 days!!!

The run-up has been spectacular for Spectrum Pharmaceuticals (SPPI).  The biotech is scheduled to hear from the FDA on Friday (Apr. 29, 2011) in regards to its sNDA for Fusilev's novel indication (read more background).  Based on literature review, Fusilev's clinical  efficacy and safety, shortage of leucovorin (Fusilev's isomeric version), Fusilev's present off-label use, and Spectrum's previous interactions with the FDA, I estimate the odds of Fusilev's approval to be 75%.  Given this info, while one might be tempted to rush in last minute to accumulate some shares before FDA's fast approaching announcement, it is actually NOT a smart move.  Looking at the chart, SPPI closed at $9.45 today, sitting in close proximity to the 52-week high of $9.75.  The 'formulation approval', mistaken by a lot of traders as an early approval of Fusilev's use in colorectal cancer, resulted in the spike in share price last Thursday.  However, the average trading volume (~1 000 000) and stagnate stock price (~$9.45) during today and yesterday's sessions signal the unwillingness of most investors to make a drastic move before Friday.  This simply means that if you buy now, you won't be able to profit due to the lack of price movement.  If you decide to hold through Friday, then you are faced with very little upside (even on approval) because, as mentioned above, the run-up has been great (my Apr. $9 call has gained 93% from $0.7 to $1.35 in the past 2 weeks) and most traders are ready to SELL on the news.  My prediction is that there will be an ~10% surge on approval initially, followed by a quick sell-off.  In that case, you will likely lose money since you bought at the peak.

Trading map

Using the Hike-n-Slide strategy, I am looking to purchase May (or even June) put options with a strike as close to the post-approval peak as possible BEFORE the sell-off begins.  Looking at the option chain below, a lot of people are ALREADY doing this, as shown by the high volume and price (although they could also be hedging their shares or simply expecting a rejection).  The reason it's best to wait until the actually announcement is that on approval, stock price will jump (temporarily), and this will cause the put option price to drop.  To maximize profit, buy at the drop and wait for it to shoot up as traders begin to sell ('the slide').