A favorite trading strategy of mine is playing upcoming FDA dates. I ignore the large pharmas like LLY, JNJ, GSK and the other behemoths. The focus for this kind of play is microcap stocks and small companies that may not even have a single drug approved yet. I get in a month or so ahead of their scheduled decision date and look to sell most or all of my holding prior to the actual decision. I don’t bother with pharmas that have upcoming Phase 1 or Phase 2 completion dates. Look for companies that are finishing up a Phase 3 trial or have an FDA decision date. These stocks will usually see a heavy influx of speculators as the date draws near. Moves of 50% up to even 300% are possible in just a month or two. It isn’t necessary to hold thru the actual decision announcement- in fact I really don’t recommend it. If you are thoroughly convinced of the arrival of good news, you could hold a small portion into the announcement, but keep it small enough that you make a nice return on the overall trade if the news is bad and the stock heads south.
When you first get in the trade you should decide if you are going to cost average or exit the trade if it drops to a predetermined point. Personally I cost average, though the need to hasn’t presented itself very often. I keep an eye out every day for any new developments, news or date changes.
HGSI is one example from last year. In the middle of April it was around .90 and hit the 3.30 area in the middle of July prior to the announcement. BIEL, a pink sheet stock, was waiting for a medical device approval and ran from the .005 area to above .12 in the span of 3 months. Between Dec. 10th and Jan. 10th NVLT went from about .90 to over 3.00 awaiting their decision. One current example is CHTP which was trading around the 2.90 area at the beginning of August and has already hit 4.47 today, August 23rd, with an impending decision in September.
With a little bit of research and choosing a few companies that have potential winners in their pipeline, you should be able to pocket some nice profits. If you are only getting 30, 40 or 50% return on your trading account annually, this is a great technique to improve those numbers with minimal risk and effort.
