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Option Trading seems to be more popular now than ever before. We all know that options can help leverage the money that you trade or invest. But, for the beginning stock trader, the concept

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

of options trading can be a little confusing. In this article, I will to talk about what options are and the different types of options. I will also show the advantage that the options tr

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

der could have over people who do not trade options.

Options can be broken down into two broad and general categories. There are call options and put options. The decision as to whether

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

r not you want to use call or put options in your option trading depends on your opinion about where the market will go and how you want to make money based on that opinion.

One of the ini

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

ial concepts that traders seem to find confusing is how options are priced. Usually, when people see the price of an option, it can be anywhere from a few cents to a couple of dollars. Bu

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

, since a stock option represents 100 shares of the stock, the actual price that the trader will pay for an option has to be multiplied by 100. So, in option trading, a stock option that i

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

priced at $.25 will actually cost $25 to purchase.

A call option is the right but not the obligation to purchase a specific stock at a certain price for specific duration of time. This a

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

llows a trader to purchase the right to buy 100 shares at the strike price of the option before the option expires. So, if you purchased an XYZ $50 call option that expires next month, you

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

have purchase the right to buy 100 shares of XYZ stock at $50 before the option expires next month. These expiration cycles are normal to option trading.

Some traders don’t see the advanta

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

es that others do in option trading until they do the math. Let’s suppose you purchase the above option for $.50. Since you purchase the stock option for $.50 and have the right to buy th

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

stock and $50, you need the stock to trade above $50.50 in order to make money. This is called your breakeven price.

Let’s suppose that you check the stock price of XYZ stock and it’s tra

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

ing at $52. In order to calculate how much profit we would have on this trade at this price, you simply subtract the current stock price from the breakeven price. So, in this case you, wou

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

d have profited $1.50. And, since options are traded in hundred share lots, this would translate to $150 profit. While this may not seem like a lot of money, keep in mind that in order to

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

initiate this trade you only had to purchase the option for $50.

In the above scenario, the trader made money when the stock went up. Can we employ our option trading skills when the marke

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

t goes down? You bet we can. If you are just looking to purchase options, this type of option trading strategy would employ put options.

A put option is the right but not the obligation

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

o sell a stock to someone at a specific price before a definite period in time. So, traders speculating that a stock may go down would purchase a put option. Let’s clarify this with an exa

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

ple.

Let’s say that you expect that ABC stock will go down. With this in mind, you purchase the ABC $25 put option for $.75. Now, remember that the stock will need to be below our breakev

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

n price in order for us to make money. In order to calculate the breakeven for this trade we would need to subtract $.75 from $25. So, once the stock begins trading below $24.25 you will

.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

e making money.

Option trading is not as confusing as some traders make it out to be. The concept of purchasing calls and puts are relatively straightforward and simple. As we have seen,

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

he leverage potential and limited risk features found in trading options can be very attractive. For some traders, these are the two reasons that they get excited about stock option trading

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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