Straddle Buy
SVNT closed Monday at $9.27 so buying the $10 straddle would cost $4 paying the asking price.
You see from the profit graph above that SVNT has to move a lot for the straddle to make money. The blue line is the profit graph for Tuesday. Here is what Tuesday’s graph looks like if the volatility collapses from 400% to 180% (July implied volatility).
Tuesday’s return graph drops a lot, hugging the expiration return graph.
Dual Calendar Spread
Since the straddle costs $4, the options market is saying that the most likely outcome of the hearing Tuesday is that SVNT move to $6 or to $14. So we can try to build the dual calendar out of -3 June 5 P ($0.45 bid) and +3 Sep 5 P ($1.25 ask) and -1 June 12.5 C ($0.65 bid) and +1 Sep 12.5 C ($2.15 ask). This would cost $489 to put on.
If the June volatility drops to the Sep level it is good for the position.
Tuesday’s blue graph moves up to the expiration graph (Friday).
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