Recoup Your ENDP Losses More Quickly

Endo Pharmaceuticals [[ENDP]] shares dropped sharply after the drug company announced that it would acquire Indevus Pharmaceuticals [[IDEV]] for $370 million, or $4.50 per share in cash. Typically, shares of acquiring companies fall to reflect the added risk of a merger and the increased leverage needed to finance the merger. However, a successful merger can mean a higher share price for all parties involved, which means that this move could be temporary. So, how can investors get back their money quickly be leveraging their stock position?

“This merger reflects our desire to expand our business beyond pain management into complementary medical areas where we can be innovative and competitive,” said Endo Pharmaceuticals President and CEO David Holveck. “We believe this expansion of our product line has significant growth potential because of the therapeutic value of the Indevus product portfolio, the unique expertise of both companies, and the demographic, health care and reimbursement trends that favor the consideration of new products to address unmet needs in urology and endocrinology.”

Existing Endo Pharmaceutical shareholders looking to leverage their position to recoup these losses quickly may want to consider using long-term options called LEAPS in a repair strategy. The strategy involves building an options position around an existing stock position in order to lower the breakeven point without committing any additional capital. This can be done by purchasing one long call while simultaneously writing two calls for every 100 shares owned. The premiums collected typically more than offset the cost of the call while the 100 owned shares covers the second written call. Meanwhile, the long call’s upside will decrease the breakeven point and leverage the position.

The key is confidence that shares of Endo Pharmaceuticals will eventually recover. Shares that continue to decline will continue to lose money; the option’s premium obtained will only slightly offset the losses. However, if the stock recovers past the breakeven point, then investors have some different options. These options involve getting out of the position at relatively breakeven and re-establishing a position, whether it be by delivering the written options or simply selling them off before expiration. Either way, this strategy can help investors recover their losses more quickly.

See “Recouping Losses with the Repair Strategy” for more information on how this strategy is implemented and check out our Tools & Products for more unique ways to make money with LEAPS.

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