Spectrum Pharmaceutical (NASDAQ: SPPI - option chain) stock is trading lower today after the company received a Complete Response letter from the FDA regarding FUSILEV, its treatment for advanced metastatic colorectal cancer. The FDA said the company did not demonstrate that FUSILEV is non-inferior to leucovorin in its supplemental New Drug Application. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on SPPI.This morning, SPPI opened at $4.98. So far today the stock has hit a high of $5.44 and a low of $4.82. As of 12:00, SPPI is trading at $5.12, down $1.09 (-17.6%). The chart for SPPI looks neutral.
For a bearish hedged play on this stock, I would consider a January bear-call credit spread above the $7.50 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 4.2% return in three months as long as SPPI is below $7.50 at January expiration. Spectrum would have to rise by more than 46% before we would start to lose money. Learn more about this type of trade here.
SPPI hasn't been above $7.50 since September and shown resistance around $6.80 recently.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in SPPI.
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