After the successful AMPE and PATH trades, time to fess up to some problem trades.
First up NeurogesX, Inc (NGSX). Micro Cap biotech stock fresh off an FDA rejection. Sell side analysts Wedbush release a research note with a $2 price target. The share price popped to 60c from 48c on this, I started shorting there....and have not stopped since. The stock is now at 70c, my average price is 62.6c and my position size is maxed (50% greater than I originally intended!). The general trade plan, 'short hyped up sell side research' is a sound one. But clearly my execution has been poor.
Where did I go wrong?
To small: NGSX is very illiquid (mkt cap $20m) and has been prone to extreme short term moves. The initial pop, 48c to 60c was not extreme enough.
Size of Trade: I have have gone in 50% above my max. Need to stick to plan and learn to accept such irrational stock moves.
What do I do now?
Today the close was strong. This worries me and moves are so extreme, I got partial (very small) covers this morning at 61c and it closes at 72c! This on a no news day, four days after the upgrade. It could well break out and go to 80c tomorrow.
My plan is to sell 1/3 at open tomorrow (70c or lower), I will sell 2/3 if I get a fade to low 63ish. If it gaps tomorrow morning, I will sit on my hands and look for 2/3 cover in the low 70's during the day.
The companies prospects are bleak, next catalyst is to agree with the FDA that drug NGX-1998 could begin a phase 3 trial. At best the trial would start near the end of 2012! NGSX only have enough money to last till the end of the year (despite massive layoffs). Huge dilution is coming. Plus the stock is now under $1, so may be de-listed from the NASDAQ.
Open Trades Short
AMPE, HUSA (April $7.5 puts), NGSX, SVVC, GMLP
Open Trades Long
PLX (May $5 calls), VXX