Genentech (DNA, $98.53, up $0.68) will not win an academy award for its efforts in “evaluating” take-over offers but give the company credit for at least trying. The “special committee” that has been evaluating the $44 billion bid from Roche said this morning that the deal “substantially undervalues” the company and has been rejected.

This was no surprise as Genentech went on to say it “would consider a proposal that recognizes the value of the company and reflects the significant benefits that would accrue to Roche as a result of full ownership.” The language Genentech is using is sounding like a friendly deal could happen but it’s clear the company is holding out for a $100+ offer.

The August 95 calls (DWNHS, $3.60, up $0.85) continue to do well from an entry price of $1.50 and I mentioned you could ride them through Friday. However, we had set a stop of $3.00 so we were taken out yesterday. The August options expire Friday so make sure if you are still in the trade to close it before the trading session ends.

The September 100 calls (DWNIT, $2.95, up $0.45) were profiled at $0.65 and we have set a stop of $2.00-$2.25. The options closed at $2.50 yesterday so let’s make the $2.25 stop a firm one. I want to allow some room for volatility but I really don’t want the stop to kick in on this one. Genentech continues to set new highs and we want to ride the wave as long as we can.

Meanwhile, we closed half of the ImClone (IMCL, $64.00, down $0.51) August 45 calls (QCIHI, $19.50, down $0.15) at $19.00 on 8/1 and set a stop of $18.00 on the rest. These calls were profiled at $2.40 and our return is something even Michael Phelps would envy. These options also expire this Friday so we will go ahead and just close this one out today.

I believe both firms will get higher offers but as always it depends on timing. If Genentech continues higher from here, the September 100 calls should continue to do well. As for ImClone, I’m not sure if there is another good trade out there for us or not. I’ll take a look at the option chains and run some figures but for now we will just go with Genentech.

Rick Rouse
Rick@OptionsMentoring.com

The biotech stocks were hot on Thursday but some of them are taking huge blows today after a drug safety scare. Elan (ELN, $11.27, down $8.78) is down another 45% following Wednesday’s 14 point drop. The stock was at $34 on Tuesday when Elan released results of a clinical trial that failed to show an overall benefit for Alzheimer’s patients who received the drug, bapineuzumab.

Biogen Idec (BIIB, $51.40, down $18.36) is also down today as it has a partnership with Elan. However, the stock is not down because of bapineuzumab. It’s the drug Tysabri that is bring down Biogen Idec. Late last night, Biogen reported that it had received word two more cases of PML, an extremely rare but potentially-deadly condition, had been confirmed in Tysabri users in Europe. Tysabri is used to treat multiple sclerosis.

The news will almost certainly make the Biogen Idec August 70 calls (IHDHN, $0.05, down $2.10) expire worthless. That’s the impact that negative news can do to option positions. We had profiled these calls at $2.30 and were out at $2.50. The update I gave Wednesday talked about setting a $2.50 stop on the calls which was hit before this news came out. Yes, we were lucky but once we had a small gain the stop was set and we took all of the emotion out of the trade.

Amylin Pharmaceuticals (AMLN, $30.20, down $1.35) is also trading lower in sympathy and the August 30 calls (AQMHF, $1.70, down $0.80) should have also been sold yesterday. They were profiled at $1.35 and are still showing a profit but I wouldn’t risk losing further profits from here with the weekend coming up.

The good news today is that ImClone Systems (IMCL, $64.45, up $0.52) is up. The August 45 calls (QCIHI, $19.20, up $0.70) are still going strong from our entry price of $2.40. Let’s go ahead and sell half of the position today and let the rest ride over the weekend. The biotech sector is always full of surprises and I don’t profile many trades in the area. However, the four I talked about Sunday have run their course and the only one that should still be open is the ImClone trade.

Rick Rouse
Rick@OptionsMentoring.com

Eaton (ETN, $96.68, up $2.42) continues to roll. The stock gained another 2.5% today and is up nearly $8 for the week. I had mentioned the activity building in the June 95 calls (ETNFS, $3.40, up $1.30) when they were trading for $1.80. Trading volume was strong and the stock made higher highs throughout the week. This sets up well for next week as Eaton continues its assualt on $100. If Eaton can get to $100 then the June 95 calls will be worth at least $5.00.

Apple (AAPL, $188.75, up $2.06) traded higher every day this week ahead of its June 9 release of the 3G iPhone launch next month. Although the impact won’t be seen in its upcoming quarter many expect Apple will crush their estimated 10 million iPhone target well before the end of the year.

Options traders are targeting the June 200 calls (APVFT, $2.91, up $0.16) and the longer-term July 200 calls (APVGT, $6.85, up $0.35).

Before closing, I also wanted to mention the American Society of Clinical Oncology’s (ASCO) annual meeting which is being held over the weekend. Imclone (IMCL, $43.58, up $0.58) and Bristol-Myers Squibb (BMY, $22.79 up $0.31) could see some action come Monday. The companies are expected to give an update on Erbitux that could help lift these stocks higher. Imclone saw plenty of action today in the June 45 calls (QCIFI, $1.55, Up $0.28) as 11,000 contracts traded hands. The July 50 calls (QCIGJ, $0.80, up $0.10) aslo experienced some brisk trading as over 2,000 contracts traded hands.

I’ll give you an update on Monday.

Rick Rouse
Rick@OptionsMentoring.com