An interesting trade

pSivida Corp (symbol PSDV) is a small medical device company that makes tiny implantable nodes that release medicines at the appropriate spot in the body over months or years. One product is a device the size of a grain of rice that gets implanted in the eyes to deliver antiviral drugs so as to combat the ocular damage that can come with HIV. Another is also for the delivery of a separate eye disease. Both are sold by Bausch & Lomb. All of the other delivery systems are subject to an agreement between pSivida and Pfizer under which Pfizer invested in the company (it is the largest shareholder in pSivida), funded the research through milestone payments, and agreed to market the end product for a preset royalty. The company is already profitable and has products close to approval (although these kinds of approvals can get delayed for a whole host of reasons.)
The point of this post is not to explain pSivida stock, however. It is rather to recommend a particular trade. As of this afternoon, it was possible to buy the stock and write a January 5 straddle on very favorable terms. The stock was 4.60. The January 5 calls were available at $0.95 and the January 5 puts were available at 1.25. This makes the price of the package $2.40 ($4.60 less the proceeds from the straddle of $2.20 = $2.40).
If the stock gets to $5.00 by January expiration, you get $5.00 in proceeds for a profit of $2.60 on an investment of $2.40. That is an annualized return of almost 350%. If the stock stays where it is as of the January expiration, The put will be exercised and you will have to buy the stock at $5.00 per share, but the proceeds from the straddle will make the actual price $2.60. You average price would then be $3.60. In other words, so long as the stock stays above $3.60 by January expiration, the trade is profitable.
Since pSivida is already profitable, it is not likely to go below $3.60 (although there are no guarantees of this). Still, given the potential upside, I think this is a great trade.