Answers - Finance

Possibly the most important aspect to get right in trading is survival. This is number one. Without surviving the bad times we are gone, with no hope. Money management and risk may sound like boring subjects, b

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

ut read on to see how exciting they can be once you learn the concrete reasons and logic for their use. You may never trade the same way again!

Here's the harsh reality. On average, many commodity traders trad

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

Examples of combination products may in

at perhaps 30-50% accuracy when they hold positions for 2-3 days. That’s a GOOD batting average for this time frame. But, the problem is they think they can take small profits and large losses and still surviv

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

e. It’s all about probability and doing the correct thing over a long period of time. Probability will eventually catch up if you are trading at 50% accuracy and taking smaller gains than losses. We must work o

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

t a trading plan that makes us take profits in proportion to the accuracy of our trading method.

One area that stands out and magnifies this problem is commodity options buying and selling. Generally, selling

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

Combination pro

ptions far out-of-the-money with a month to expiration can sometimes give you win/loss accuracy runs of 90% + at times. However, the profits are small and that 10% loss is often a big one that can take back muc

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

h if not all the little profits. Commodity account risk management is more difficult when the profits are small.

And, conversely, buying options way out of the money can yield results as low 10% accuracy. But

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

F the rare winning option is held for a big gain, it will make up for the many small losses - but not always. This is where your option trading and analysis skills make the big difference and give you an edge t

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

o rise above the crowd.

Just a small edge can mean so much. It’s like the difference between a golfer who hits par and one who hits a few strokes under par – who wins the tournaments? Or baseball batting avera

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 of 275 vs: 325 - or pitchers who can throw 85 mph compared to one who can throw 99 mph. It’s like night and day. It’s the same thing with commodity futures trading. A little means so much. It’s worth strivin

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

for.

Buying commodity options can be a tough game. Remember, to win when buying an option, the futures contract must move in the correct direction and do it quickly in the time granted. That’s the only way to

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

Following aspects would a

win. The commodity option will lose if the underlying futures contract price goes nowhere, goes in the wrong direction or even goes it the correct direction, but not fast enough! That’s why 10-20% accuracy is

dd to the challenges in developing combination products:

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

good average for buying way out of the money, long term commodity options.

To succeed buying commodity options means you need to exploit the trades that work out. Forget about taking small profits, or play an

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

other game where you can take smaller profits, like day trading and other methods. The saying, “you can’t go broke taking a profit” does not apply to long term commodity option buying. (And stock option buying)

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

Conversely, when selling (writing) a commodity option, you will profit if the option simply does not go above a certain point in one direction by expiration time. It’s “easier” to be right when selling a far o

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

t-of-the-money option, but the profits are small in comparison and the occasional loss that comes along can sometimes be big. The commodity market really does price things accordingly. There’s no free lunches.

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

Professional from academic institutions, pharmaceutical industries, health care indust

That’s why you need to develop your edge or let someone who has one, trade your money.

To repeat, there are three ways to be wrong when buying commodity options, thus the low accuracy rate; and only one way to

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

be wrong when selling (writing) them, thus the high accuracy of the method. The win/loss ratio and the percentage of accuracy reflects this. Call it a wash, if you will. You really need an outside edge to beat

.

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

this commodity game.

If you do not know what your edge is, then you don't have one and the market pros with an edge will eat your lunch over time. Maybe not right away, but over a long run of probabilities, th

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

Companies that provide selfless information through particip

y will take your money away.

Part Three of Five Parts - Next!

There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used

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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Answers - Commodity Futures and Options Trading- Money Management, Risk and Trading Logic, PART 2

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