On a day when the markets were hammered, with the Dow, S&P and Nasdaq all down over 2%, it is pleasure to reveal that our Optimer Pharmaceuticals (Nasdaq: OPTR) trade worked out, just as we drew it up on the whiteboard!

Why did it work? Well it was not simply a function of the Company receiving FDA approval for its new antibacterial drug Dificid (fidaxomicin), believe it or not this trade may have made money even if the FDA had rejected the NDA.

So I am sitting here, telling you straight to your face, that we were positioned to capitalize on the stock regardless of the outcome at FDA and regardless if the stock price moved up or if the stock price moved down.

Perhaps more than just a few of you are wondering what the catch is here, maybe even thinking there is some sort of Madoff magic transpiring – well I assure you this is all on the up and up – nothing illegal, no smoke and no mirrors.

In fact, the only surefire way to lose money on this trade would have been if the stock price had failed to move, in either direction. It just so happened that OPTR, on the first day of trading post FDA ruling, rocketed skyward, and was up 11.8%. But again, just to emphasize our position no this trade … say the FDA rejected the NDA and the stock price subsequently plummeted on the bad news, well yes, we still would have made money on the trade!

But how say you? How do we make money if the price goes up or down? Okay so here is how we pulled off this trade [drumroll please…], we applied an advanced derivative strategy, and put on a long strangle with put and call options. And to add a little more gas to the fire we simultaneously applied a short straddle.

This might all sound a bit Greek, so depending upon the feedback from this post I may delve into some detail in subsequent posts with a primer on how options work and could follow this with additional option strategy posts covering such applications as our good friends the straddle and strangle. Any questions shoot me an email at arubenstein@rnaventures.com.

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Life Science Deal Flow is not a financial advisor, and does not recommend the purchase of any stock or advise on the suitability of any trade or investment. Stock trading and investing can cause loss of capital, and you should always consult with a professional financial advisor before trading or investing.