Around noon today, the FDA approved SOMX oral drug called Silenor for treatment of Insomnia. There are already other approved drugs similar to this currently in the market. Nevertheless, this is a monster news for this $223 million market cap.
Immediately after the news came out, the stock jumped from $3.8 to $8.00 and then settled down for most of the afternoon around $6.50. The trigger should have been a push above $8.00 to go long the stock and play the momentum. The stock did exactly that in late afternoon trading. But, I didn't have a conditional order set up and the run was so fast and furious that I missed it.
SOMX doesn't have options. I think there is plenty of momentum still left in the stock. SOMX is trading around $9.10 after hours. The high was $10.00 during the day and $8.00 should provide support. My day trading plan for next few days is to go long the stock if and when it retests $8.00 for a shot back to $10.00 with stop of max $0.50 loss if it breaks down below $8.00.
On the other hand, if it never retests $8.00 and breaks out above today's high of $10.00, then immediately go long the stock and sky is the limit. In this case I'll be using "trailing" stop order of $0.50.
There is no trade to do if the stock continues to trade above $8.00 and below $10.00.
As a general rule, never day trade without stops. Understand charting and buy on retests or breakouts. In case of SOMX, with stop in place, we're risking $0.50 to make $2.00 profit if the stock retests $8.00 for a shot back to $10.00. On a breakout above $10.00, again we're risking $0.50 via the trailing stop to potentially make unlimited profits. That's the plan.
P.S. Another small $81 million market cap company called AP Pharma (APPA) is expecting FDA decision either tonight or tomorrow for its treatment for Chemotherapy-induced nausea and vomiting (CINV). No options available here either, but if the drug gets approved, watch the stock take off and we could have another trading plan here as well.
Good luck!
About Me
- Fahad Khalid
- Chicago, IL, United States
- I have Masters in Business (Accounting and Finance 2003) from Michigan State University. I have been trading the market since 1998. Prior to picking up trading as a full-time career in 2008, I was a management consultant at Alvarez & Marsal and Conway MacKenzie for four years. I provided turnaround, crisis management and restructuring services to financially distressed firms. Prior to working in turnaround, I worked in Audit & Assurance at Deloitte & Touche for two years. Trading in the market has always remained my side business ever since I started college. 90% of the time, I trade through options. I love volatility skews and positive Theta plays. While I make a lot of directional bets, in general my favorites are to take advantage of high implied volatilities through calendar or butterfly spreads and vertical credit spreads. I never buy straight calls or puts and I do a lot of exotic multi-leg option trades.
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